01Overview
What is a tax audit?
A tax audit is an examination of the books of account and financial records of a business or professional to determine whether the prescribed tax requirements have been followed. It helps verify reported turnover, income, expenses, deductions, and other relevant financial information.
A tax audit must be conducted by a qualified Chartered Accountant (CA) where required, and the audit report provides prescribed information about the taxpayer's financial records and tax-related particulars. It is a statutory requirement for specified businesses and professionals that meet the prescribed criteria, not for every taxpayer.
For the financial year 2025–26 (Assessment Year 2026–27), the relevant provision is Section 44AB of the Income-tax Act, 1961. For Tax Year 2026–27 onward, the corresponding provision is Section 63 of the Income-tax Act, 2025, subject to the applicable rules.
02What's Reviewed
What does a tax audit review?
The Chartered Accountant examines the relevant records and prepares the prescribed audit report. A tax audit may involve reviewing:
- Sales, turnover, and gross receipts
- Business or professional income and expenses
- Books of account and supporting documents
- Deductions, exemptions, and other tax-related claims
- Cash receipts and payments, where relevant
- Tax payments and other prescribed disclosures
03Who Needs It
Who is required to get a tax audit?
Applicability depends on the nature of the business or profession, turnover or gross receipts, cash transactions, and other prescribed conditions.
Business turnover above ₹1 crore
A tax audit is generally required when total sales, turnover, or gross receipts exceed ₹1 crore in the relevant year, subject to applicable provisions and exceptions.
Higher ₹10 crore limit
The threshold rises to ₹10 crore if cash receipts do not exceed 5% of total receipts and cash payments do not exceed 5% of total payments. Non-account-payee instruments may count as cash.
Professional receipts above ₹50 lakh
Individuals carrying on specified professions may need a tax audit when gross professional receipts exceed ₹50 lakh in the relevant year.
Presumptive taxation cases
Some taxpayers under presumptive taxation who declare income below the prescribed level or opt out of the scheme may also need an audit, depending on income and turnover.
04Objectives
Objectives of a tax audit
A tax audit serves several purposes for businesses, professionals, and the tax administration.
Verify books of account
Examines whether books and financial records have been maintained appropriately and the prescribed information is available.
Identify and report discrepancies
Identifies inconsistencies, omissions, or other matters the CA must report under the audit requirements.
Support accurate tax reporting
Verifies turnover, income, expenses, deductions, and disclosures. Reports are generally Form 3CA or 3CB with Form 3CD.
Promote tax compliance
Helps eligible taxpayers meet reporting obligations in the prescribed format.
Improve financial record management
Organised books, invoices, and receipts help monitor transactions and prepare for filings.
Support better business decisions
Reliable records help assess revenue, expenditure, profitability, and performance.
Strengthen financial transparency
Reviewed records improve reliability for lenders, investors, partners, and tax authorities.
05Types
Types of tax audit and examination in India
It is important to distinguish a statutory tax audit conducted by a Chartered Accountant from an examination or verification carried out by the Income Tax Department.
| Type | What it involves |
|---|---|
| Tax audit under Section 44AB | A Chartered Accountant examines the books of specified businesses and professionals and prepares Form 3CA or 3CB, along with Form 3CD. |
| Scrutiny assessment | The Income Tax Department examines a return in detail and may seek explanations or documents about particular income, deductions, or claims. The taxpayer responds within the prescribed timeline. |
| Verification of information | The department requests documents or clarification to verify information in a return or its records. |
| Reassessment proceedings | Initiated where the statutory conditions for income that may have escaped assessment are met; the taxpayer may need to provide explanations or records. |
| Return processing and adjustments | An intimation communicates the processing result, tax adjustments, refund, or amount payable. This is different from a statutory tax audit. |
06Why Tax Uncle
Get tax audit assistance from Tax Uncle
Tax Uncle helps businesses and professionals understand their tax audit requirements and organise the relevant financial information for compliance.
Our assistance may include reviewing preliminary audit applicability, organising books of account and supporting documents, coordinating information required by the Chartered Accountant, and helping you understand the applicable filing process, including your income tax return.