Is your business or professional practice liable for a tax audit this year? With the transition to the Income-tax Rules, 2026, staying compliant is more critical than ever. At BusinessRights, we help small and medium enterprises navigate these complexities. This guide covers everything you need to know about tax audit applicability for FY 2025-26 (Assessment Year 2026-27).
What is an Income Tax Audit?
Under Section 44AB of the Income Tax Act, a tax audit involves an examination of a taxpayer’s books of accounts by a Chartered Accountant. The goal is to ensure that the financial statements are accurate, taxes are calculated correctly, and no tax evasion has occurred.
Threshold Limits for FY 2025-26
The turnover limits for a mandatory audit depend on the nature of your income and how you handle your transactions.
1. For Business Owners
Standard Limit: If your total sales or turnover exceeds ₹1 Crore, a tax audit is mandatory.
Digital Incentive (95% Rule): To promote a cashless economy, the government has increased the audit limit to ₹10 Crores, provided that at least 95% of all business receipts and payments are conducted through digital modes (UPI, Net Banking, Cards).
2. For Professionals
Standard Limit: Professionals (Doctors, Engineers, Lawyers, etc.) must undergo an audit if their gross receipts exceed ₹50 Lakhs.
Enhanced Limit: If digital receipts account for 95% or more of total income, this limit is extended to ₹75 Lakhs.
The Rise of Presumptive Taxation (Sections 44AD & 44ADA)
Many small taxpayers opt for presumptive taxation to simplify their compliance. Under these schemes, you declare a fixed percentage of your turnover as profit without maintaining detailed books.
Section 44AD (Business): Applicable up to ₹3 Crore turnover (if 95% digital). You must declare at least 6% (digital) or 8% (cash) as profit.
Section 44ADA (Professionals): Applicable up to ₹75 Lakh receipts (if 95% digital). You must declare at least 50% as profit.
The Audit Trigger: If you choose to declare income lower than these prescribed rates and your total income exceeds the basic exemption limit, a tax audit becomes compulsory regardless of your turnover.
Major Changes in 2026: New Form Numbers
The Draft Income-tax Rules, 2026 have introduced a major administrative overhaul. The most important change for businesses is the renumbering of compliance forms:
Form 26: This new form replaces and merges the old Forms 3CA, 3CB, and 3CD.
Form 168: This is the new name for Form 26AS (Annual Information Statement).
Forms 130 & 131: These replace the traditional TDS certificates (Form 16 and 16A).
Important Deadlines to Remember
Mark these dates for the 2026-27 Assessment Year:
September 30, 2026: Deadline to file the Tax Audit Report (Form 26).
October 31, 2026: Deadline for filing the Income Tax Return (ITR) for audit cases.
Penalty for Non-Compliance
Failure to get your accounts audited or delay in filing the report can lead to a penalty under Section 271B. The penalty is 0.5% of the total turnover or ₹1,50,000, whichever is lower.
How BusinessRights Can Help
Compliance shouldn’t be a hurdle to your growth. At BusinessRights, we provide end-to-end support for Company Registration, Accounts Management, GST, and Tax Audits. Our experts ensure your books are audit-ready and filed accurately under the new 2026 regulations.
Why Businesses Must Review Audit Applicability Early
Many businesses assume tax audit applies only to large companies. However, even small businesses and freelancers may fall under audit due to:
Presumptive taxation conditions
Lower declared profits
High turnover growth
Digital transactions
Early assessment helps avoid last-minute rush and penalties.
How BusinessRights Can Help
BusinessRights provides complete support for:
Checking tax audit applicability
Reviewing turnover and cash transaction limits
Preparing financial statements
Coordinating with Chartered Accountants
Filing audit reports before due dates
Our goal is to ensure your business remains compliant and penalty-free.
Conclusion
For FY 2026 (AY 2026-27), tax audit applicability depends on turnover, cash transaction limits, and presumptive taxation conditions. Understanding your eligibility in advance can save you from heavy penalties and compliance issues. If you are unsure whether your business requires a tax audit, consult professionals and review your financials early. Contact BusinessRights which assists businesses and professionals across India in tax compliance, audit support, and income tax return filing.