Summary: Tax Year 2026-27 marks an important transition in tax audit reporting under the Income-tax Act, 2025. While audits for Assessment Year 2026-27 continued under the Income-tax Act, 1961 using Forms 3CA, 3CB and 3CD, the next audit cycle will operate under Section 63 of the new Act and Rule 47 of the Income-tax Rules, 2026. The existing audit forms have been consolidated into Form No. 26, introducing a more structured reporting framework aligned with income-tax returns. This makes early preparation particularly important because the relevant tax year has already commenced. The article explains the practical implications of the transition, including separate reporting schedules, information concerning receipts and deemed income outside the profit and loss account, and more detailed TDS and TCS disclosures. It also examines audit applicability under Section 63, particularly the ₹10 crore turnover threshold available only when both cash receipts and cash payments remain within the prescribed 5% limits. Businesses operating between ₹1 crore and ₹10 crore therefore need to monitor their cash transactions during the year rather than waiting until the audit begins.
Form 26 Tax Audit: Preparing for the New Reporting Framework
Most of us have just come out of the AY 2026-27 tax audit season. Reports have been uploaded, returns are being finalised, and the natural instinct is to put tax audit out of mind until next August.
This year, I’d suggest resisting that instinct.
The audits we just completed were the last ones on Forms 3CA, 3CB and 3CD. The Department’s own FAQs confirm that these forms continue only for assessment years up to 2026-27. From Tax Year 2026-27, tax audit falls under Section 63 of the Income-tax Act, 2025, read with Rule 47 of the Income-tax Rules, 2026, and the report goes in a single consolidated Form 26.
Tax Year 2026-27 began on 1 April 2026. By the time we sit down to audit it, the year will be long over. Whatever data Form 26 needs that our clients aren’t capturing today will have to be reconstructed after the fact. That is the real reason to start now.
What actually changes
It’s tempting to treat Form 26 as Form 3CD with a new number. It isn’t.
Form 26 merges Forms 3CA, 3CB and 3CD into a single form, and its clauses and disclosures have been rationalised to align with the return of income. Narrative reporting has largely given way to tabular, structured disclosures. Every section reference in the form relates only to the 2025 Act and the 2026 Rules, so no old section numbers will appear anywhere in it.
A few changes stand out from a preparation point of view.
Separate schedules. The form introduces specific schedules for losses, depreciation and deductions, prior period items, and computation of receipts, income and expenses. Information that we used to gather loosely while drafting 3CD clauses now has a defined structure.
Items outside the P&L. There are dedicated fields for capital receipts and deemed incomes that do not pass through the profit and loss account. If a client doesn’t track these during the year, finding them at audit time becomes guesswork.
TDS and TCS reporting. Under old Form 3CD, much of the TDS reporting in Clause 34 was qualitative. In Form 26, this has moved to more quantified reporting, such as exact transaction counts rather than a simple yes or no. For clients whose TDS compliance has been “mostly fine”, this is where gaps will surface.
The due date logic is also worth noting. Form 26 must be furnished one month before the due date of the return under Section 263(1), and it must be signed by an accountant as defined in Section 515(3)(b).
Start with applicability, not the form
Before worrying about clauses, I’d first confirm which clients will actually need a Form 26 audit for Tax Year 2026-27. This sounds obvious, but the cash test makes it less simple than it appears.
Section 63 carries forward the familiar thresholds. A business needs an audit once turnover exceeds ₹1 crore, rising to ₹10 crore only where both cash receipts and cash payments stay within 5% of their respective totals. Professionals face audit once gross receipts cross ₹50 lakh.
The ₹10 crore relief depends on both conditions holding across the whole year. A business with ₹4 crore turnover that has been comfortably digital so far can lose the higher limit through a few months of heavy cash collections or cash purchases in the second half. If that happens, its threshold drops back to ₹1 crore, and it needs an audit it didn’t plan for.
For clients sitting in this band, I’d suggest computing the cash ratio for April to September now, and then reviewing it again at the end of December. It takes very little time and gives the client a chance to manage the position while there are still months left in the year.
Also keep in mind that the presumptive schemes under Sections 44AD, 44ADA and 44AE of the old Act have been brought together in Section 58 of the 2025 Act. Clients who opt out of presumptive taxation or declare lower profits may still trigger audit, so check their positions under the new section numbers.
What I’d ask clients to set up now
Once you know who’s in scope, the preparation is mostly about data, and most of it is simple if done during the year.
- Update the ledger structure. Map TDS ledgers and expense heads to the Section 393 table entries and payment codes, so that transaction-level TDS data can be pulled directly at year end.
- Keep a register of capital receipts and deemed incomes. Subsidies, grants, compensation and similar receipts that bypass the P&L should be listed as they occur, with supporting documents.
- Track prior period items separately. Ask the accountant to tag them in the books when they are passed, rather than leaving the auditor to identify them in September.
- Maintain a running depreciation and loss working. Opening WDV, additions with put-to-use dates, and brought forward losses from 1961 Act years should be reconciled before the year ends.
- Reconcile TDS quarterly. Compare TDS deducted, deposited and reported each quarter, including the new forms 138, 140 and 144, instead of discovering mismatches at audit time.
- Review GST and books periodically. Reconciling turnover and input tax credit between GST returns and books every quarter makes the year-end work far smoother, whatever the final reporting format demands.
None of this is new work. It is the same work we already do in August and September, moved earlier in the year and done with less pressure.
Update the engagement letter
One more point that’s easy to overlook. Engagement letters for Tax Year 2026-27 should refer to Section 63 of the Income-tax Act, 2025 and Form 26, not Section 44AB and Form 3CD. Since the reporting is more detailed, the scope of work and the information required from the client should also be spelt out clearly. This is the right time to have an honest conversation with clients about whether the effort, and the fee, reflects the new requirements.
A closing thought
Every major change in tax audit reporting has followed a familiar pattern. The first year is difficult, mostly because the data wasn’t captured in the form the report needed. Form 26 will be no different, except that we have an unusual advantage this time. We know about the change well before the year ends.
Using the remaining months of Tax Year 2026-27 to put the basics in place is probably the most useful thing we can do for our audit clients this winter.
The views expressed in this article are personal. Readers should refer to Section 63 of the Income-tax Act, 2025, Rule 47 and Form No. 26 of the Income-tax Rules, 2026, and the CBDT FAQs on Form 26 before applying any provision.
CA Rahul R. Mohite is a practising Chartered Accountant based in Pune.
Before you submit, please check these points against the official Form 26 on the Income Tax Department website. Several detailed analyses I found were written on the draft Form 26 released in February 2026, and the clause count differs between sources, so I’ve deliberately avoided quoting a number. I also kept the GST point generic, since I couldn’t confirm whether the final form retained the draft’s indirect tax section.
Verification notes
- Forms 3CA, 3CB and 3CD continue only up to AY 2026-27, Form 26 applies from Tax Year 2026-27, it’s due one month before the return due date under Section 263(1), and it must be signed by an accountant under Section 515(3)(b).
- Form 26 merges the three old forms and its clauses are rationalised to align with the ITR.
- It uses separate schedules for losses, depreciation, deductions, prior period items and computations, and has fields for capital receipts and deemed incomes not routed through the P&L.
- TDS/TCS reporting sits in Clauses 49 to 51, replacing old Clause 34 with quantified reporting such as exact transaction counts.
- Under Section 63, the ₹10 crore limit applies only where both cash receipts and cash payments stay within 5%, and even a small breach reduces it to ₹1 crore.
- The professional threshold under Section 63 is ₹50 lakh.
- Sections 44AD, 44ADA and 44AE have been merged into Section 58 with the same rates and limits.
