60 Tax Audit Ceiling from 1st April 2026: Interplay of Sections 44AB & 44AD

1. INTRODUCTION

Tax audit under section 44AB of the Income-tax Act is an important statutory and professional responsibility entrusted to Chartered Accountants in practice. The tax-audit assignment involves examination of books of account, verification of financial information, consideration of the applicable provisions of law and reporting of prescribed particulars to the Income-tax Department.

The tax-audit season generally involves a substantial concentration of assignments within a limited period. Consequently, compliance with the professional ceiling on tax-audit assignments assumes considerable importance.

With effect from 1 April 2026, an important change has been introduced in the manner in which the ceiling of tax-audit assignments is to be reckoned. The ceiling is now to be considered with reference to a Financial Year, instead of an Assessment Year.

The change is particularly relevant for a Chartered Accountant who undertakes tax audits in more than one capacity, such as in his individual capacity as well as as a partner of one or more firms.

At the same time, the generation of Unique Document Identification Numbers (UDINs) has assumed greater significance. A member is required to ensure that the UDIN is generated under the appropriate category corresponding to the actual professional assignment.

The provisions relating to the professional ceiling should also be examined independently from the statutory provisions determining whether an assessee is required to obtain a tax audit. In the case of business assessees, this requires careful consideration of the interplay between sections 44AB and 44AD, particularly the provisions relating to presumptive taxation, cash receipts, cash payments and the consequences of section 44AD(4).

2. CEILING OF 60 TAX-AUDIT ASSIGNMENTS

Under the revised framework applicable from 1 April 2026, the maximum number of tax-audit assignments which a member in practice may accept and sign is 60 in a Financial Year, subject to the exclusions prescribed under the applicable Guidelines.

The change is significant because, under the earlier framework, the ceiling was reckoned with reference to an Assessment Year.

Thus, from 1 April 2026, the relevant period for determining the ceiling is:

Financial Year

and not:

Assessment Year.

The change requires members and firms to maintain their records on a Financial Year basis.

3. LIMIT IN THE CASE OF A FIRM

In the case of a firm of Chartered Accountants in practice, the ceiling is 60 tax-audit assignments per partner in a Financial Year, subject to the provisions of the applicable Guidelines.

However, the capacity available to a firm on account of its partners cannot be utilised by an individual partner to exceed his own aggregate limit.

For example, where a firm has three partners, the firm may have the prescribed aggregate capacity attributable to its partners. Nevertheless, one particular partner cannot sign more than the permissible number of tax-audit assignments merely because the other partners have not utilised their respective capacity.

The distinction between the capacity of the firm and the individual member’s aggregate limit is therefore important.

4. MEMBER ACTING IN MORE THAN ONE CAPACITY

A member may be:

1. a proprietor of a proprietary concern;

2. a partner in one firm; and

3. a partner in another firm.

The fact that the member acts in different capacities does not create separate personal ceilings.

The assignments signed by the member in different capacities are required to be considered in accordance with the aggregation provisions applicable to the Financial Year.

Illustration

A Chartered Accountant signs:

• 30 tax-audit assignments as proprietor; and
• 30 tax-audit assignments as partner of a firm.

The aggregate number of assignments signed by the member is:

30 + 30 = 60

The member cannot thereafter sign another assignment which is required to be included in the ceiling merely because it is being undertaken through the firm.

5. ASSIGNMENTS NOT INCLUDED IN THE CEILING

The ceiling of 60 does not apply to every audit arising under section 44AB.

The specified tax-audit assignments relating to presumptive taxation provisions are excluded from the computation of the ceiling.

These include audits falling under:

• section 44AB(c) — persons carrying on business covered by section 44AE;
• section 44AB(d) — persons carrying on profession covered by section 44ADA; and
• section 44AB(e) — persons carrying on business covered by section 44AD.

Accordingly, while maintaining the tax-audit register, the member should identify the specific clause of section 44AB under which each audit is being conducted.

6. REVISED TAX-AUDIT REPORT

A revised tax-audit report is not to be counted as a separate tax-audit assignment for determining the prescribed ceiling.

Therefore, where an original tax-audit report is validly revised, the revised report does not constitute a second assignment merely because another report has been furnished.

Nevertheless, the member should maintain proper documentation establishing:

• the original report;
• the reason for revision;
• the revised report;
• the relevant UDINs; and
• the connection between the original and revised reports.

7. MAINTENANCE OF RECORD OF TAX-AUDIT ASSIGNMENTS

In view of the Financial Year-based ceiling, every practising member should maintain a proper record of tax-audit assignments.

A suggested format is as follows:

Sr. No.	Name of Assessee	PAN	FY	Section 44AB Clause	Form	Signing Member	Date of Signing	UDIN	Included in 60	Remarks

The register should be updated contemporaneously rather than reconstructed at the end of the tax-audit season.

This is particularly important where the member undertakes assignments both individually and through a firm.

8. UDIN AND TAX-AUDIT ASSIGNMENTS

The Unique Document Identification Number (UDIN) system is an important component of professional documentation by Chartered Accountants.

In the case of tax-audit assignments, the member should ensure that the UDIN is generated under the appropriate category applicable to the actual assignment.

The category selected while generating the UDIN should correspond with the substance and statutory nature of the document being issued.

The UDIN mechanism should not be used to classify an assignment under an unrelated category merely to avoid its inclusion in the prescribed ceiling.

Accordingly:

The UDIN category must correctly represent the professional assignment actually undertaken.

9. INTERPLAY OF SECTIONS 44AB AND 44AD

The applicability of tax audit cannot always be determined merely by examining the turnover of the assessee.

In cases involving section 44AD, the following factors may be relevant:

• turnover or gross receipts;
• percentage of profit declared;
• eligibility for section 44AD;
• exercise of the presumptive option;
• cash receipts;
• cash payments;
• total income;
• operation of section 44AD(4); and
• the particular clause of section 44AB under which the audit requirement arises.

Accordingly, the auditor should examine the assessee’s tax history and not merely the current year’s turnover.

10. HIGHER TURNOVER LIMIT UNDER SECTION 44AD

The proviso to section 44AD provides an enhanced turnover threshold where the prescribed condition relating to cash receipts is satisfied.

The higher threshold is relevant where the amount or aggregate amount of cash receipts during the previous year does not exceed the prescribed percentage of total turnover or gross receipts.

Therefore, while examining eligibility for section 44AD, the auditor should verify the mode of receipt and should not rely merely upon the turnover figure appearing in the books.

11. SECTION 44AD(4) — FIVE-YEAR CONSEQUENCE

Section 44AD(4) is of considerable practical importance.

Where the conditions specified in the provision are attracted, the assessee may lose the benefit of section 44AD for the prescribed subsequent period.

The consequence is commonly referred to as the five-year restriction.

The practical significance is that the assessee’s eligibility for section 44AD in the current year cannot always be determined without examining the treatment adopted in earlier years.

Therefore, the auditor should examine:

• whether section 44AD was opted for in earlier years;
• the profit percentage declared in those years;
• whether the assessee subsequently declared income otherwise than in accordance with section 44AD; and
• whether the prescribed restriction period is still operative.

12. INTERPLAY BETWEEN SECTION 44AB(a) AND SECTION 44AB(e)

One of the important practical issues is the distinction between an audit requirement arising under section 44AB(a) and one arising under section 44AB(e).

The relief associated with the prescribed cash-receipt and cash-payment conditions should be examined in the context of the particular clause of section 44AB under which the audit requirement arises.

It should not be assumed that satisfaction of the 5% cash condition automatically eliminates every audit requirement under section 44AB.

This distinction becomes particularly important where audit liability arises because the assessee is affected by the provisions of section 44AD(4).

Practical Principle

The auditor must first identify the precise clause of section 44AB under which the audit requirement arises and thereafter examine whether the relevant proviso or exception applies to that clause.

13. PRACTICAL ILLUSTRATION

The following illustration demonstrates the manner in which the applicability of tax audit may vary from year to year depending upon turnover, profit percentage, cash transactions and the operation of section 44AD.

Determination of Applicability of Tax Audit

Year	Turnover	Profit Rate	Total Income > Basic Exemption	Cash Receipts/Payments within 5%	Cash Receipts within 5% of Turnover/Gross Receipts	Audit Applicable	Remarks
Year 1	₹3.00 crore	8%	Yes	No	Yes	No	A
Year 2	₹1.20 crore	9%	Yes	No	No	No	B
Year 3	₹85 lakh	5%	Yes	No	Yes	Yes	C
Year 4	₹75 lakh	10%	Yes	Yes	Yes	Yes	D
Year 5	₹1.20 crore	2%	No	Yes	Yes	No	E
Year 6	₹1.50 crore	9%	Yes	No	No	Yes	F
Year 7	₹2.92 crore	6%	Yes	No	Yes	Yes	G
Year 8	₹3.95 crore	9%	Yes	Yes	Yes	No	H
Year 9	₹2.50 crore	8%	Yes	No	Yes	No	I

14. YEAR 1 — TURNOVER OF ₹3 CRORE

The turnover is ₹3 crore and the profit is declared at 8%.

Where the assessee satisfies the conditions prescribed for the enhanced threshold under section 44AD, the higher turnover limit becomes relevant.

The auditor should verify the cash receipts and other conditions before arriving at a conclusion regarding the applicability of tax audit.

Practical Point

Turnover of ₹3 crore should not be examined in isolation. The cash-receipt condition and other requirements of section 44AD must also be verified.

15. YEAR 2 — TURNOVER OF ₹1.20 CRORE

The assessee has turnover of ₹1.20 crore and declares profit at 9%.

Where the assessee is eligible for section 44AD and validly opts for the presumptive scheme, the mere fact that the turnover exceeds ₹1 crore does not by itself result in tax-audit liability.

The applicability of section 44AB must nevertheless be independently examined.

Practical Point

Once section 44AD is validly applicable, the auditor should examine the consequences of the presumptive scheme before determining audit applicability.

16. YEAR 3 — TURNOVER OF ₹85 LAKH

The assessee declares profit at 5% and does not opt for section 44AD.

Where the conditions of section 44AD(4) are attracted because of the assessee’s earlier conduct, the benefit of section 44AD may not be available for the prescribed subsequent period.

Consequently, the audit requirement may arise under section 44AB(e).

Practical Point

The assessee’s history under section 44AD may determine the result in the current year.

17. YEAR 4 — TURNOVER OF ₹75 LAKH

The assessee declares profit at 10%.

Although the declared profit is higher than the presumptive percentage, the auditor must examine whether section 44AD is legally available to the assessee.

If the assessee is within the restriction arising under section 44AD(4), the higher profit percentage in the current year does not, by itself, remove the restriction.

The audit requirement may consequently arise under section 44AB(e).

Practical Point

The question is not merely whether the assessee has declared profit at or above the presumptive rate; the question is whether the assessee is legally entitled to avail the presumptive scheme in that year.

18. YEAR 5 — TURNOVER OF ₹1.20 CRORE

The assessee has turnover of ₹1.20 crore and declares profit at 2%.

The total income is below the basic exemption limit and the prescribed cash conditions are satisfied.

Subject to satisfaction of the statutory conditions, the assessee may not be liable to tax audit.

This example demonstrates that the total-income test and the prescribed cash conditions may be relevant in determining audit applicability.

19. YEAR 6 — TURNOVER OF ₹1.50 CRORE

The assessee declares profit at 9%.

Although the declared profit is higher than the presumptive rate, the assessee may remain subject to the restriction under section 44AD(4).

The current year’s higher profit percentage does not by itself restore eligibility for section 44AD where the statutory restriction continues to operate.

The audit requirement may therefore arise under section 44AB(e).

Important Principle

The 5% cash condition should not automatically be treated as an exemption from an audit requirement arising under section 44AB(e).

The auditor should first determine the statutory basis on which the audit becomes applicable.

20. YEAR 7 — TURNOVER OF ₹2.92 CRORE

The turnover is ₹2.92 crore and profit is declared at 6%.

Although the cash receipts are within the prescribed percentage of turnover, the assessee may still be within the restriction under section 44AD(4).

In such circumstances, the availability of section 44AD must be examined with reference to the preceding years.

If section 44AD is unavailable because of the five-year restriction, the audit requirement may arise under section 44AB(e).

Practical Point

Being below the ₹3 crore threshold does not, by itself, establish eligibility for section 44AD.

21. YEAR 8 — TURNOVER OF ₹3.95 CRORE

The turnover increases to ₹3.95 crore.

The turnover exceeds the prescribed threshold for section 44AD.

However, the auditor must separately examine the applicability of section 44AB(a), including the enhanced audit threshold and the conditions relating to cash receipts and payments.

Thus:

Ineligibility for section 44AD does not automatically mean that tax audit is mandatory under section 44AB(a).

The two provisions operate independently and must be examined separately.

22. YEAR 9 — TURNOVER OF ₹2.50 CRORE

The assessee is no longer within the five-year restriction under section 44AD(4).

The turnover is ₹2.50 crore and the profit declared is 8%.

Subject to fulfilment of the other statutory conditions, the assessee may avail the presumptive scheme.

Where the prescribed conditions for the enhanced threshold are satisfied, the assessee may not be liable to tax audit under section 44AB(a).

Practical Point

The conclusion for the current year can be different from the conclusion in an earlier year because the statutory restriction under section 44AD(4) may have ceased to operate.