Tax Audit: Section 44AB Gives Way to Section 63, and the Penalty Becomes a Fee

A client who asks whether a tax audit applies is usually asking about turnover. Since 1 April 2026 there is a second question underneath it, which Act applies, and a third that the change has made more expensive: what a missed date costs.

Which Act

The Income-tax Act, 2025 came into force on 1 April 2026 (section 1(3)). It speaks of tax years rather than previous years, and its first is 2026-27. Accounts for FY 2025-26 are audited under section 44AB of the 1961 Act; accounts for 2026-27 onwards under section 63 of the 2025 Act.

The limits are unchanged

Section 63 reproduces the thresholds of section 44AB.

Two points are commonly misread.

The 5 per cent test is about cash, not about digital payments, and it has two limbs. Receipts in cash must be within 5 per cent of all receipts, and payments in cash within 5 per cent of all payments. Failing either keeps the limit at ₹1 crore. A trader who is paid entirely by bank transfer but pays a tenth of his purchases in cash has a ₹1 crore limit.

A cheque that is not crossed account payee counts as cash. It is an easy way to fail the test without having handled any currency.

Where a person is already required to have accounts audited under another law, a single audit can serve if the report required under the Income-tax Act is furnished with it by the same date.

One difference of text. Section 44AB also lists the cases of presumptive income under sections 44AE, 44BB and 44BBB, and ties the audit in the 44AD and 44ADA cases to income exceeding the basic exemption limit. Section 63 as enacted refers only to sections 58(2) and 61(2). Whether the older conditions are carried in those sections we have not checked, and anyone with such a case should read them rather than rely on this table.

The date

Section 63 fixes the date by reference to the return, not by a calendar date of its own: one month before the due date under section 263(1). The table in section 263(1) gives 31 October for companies and for non-company assessees whose accounts are required to be audited, and 30 November where a section 172 report is required. The audit report is therefore due on 30 September, or 31 October in the transfer pricing cases. This is the position under the 1961 Act also, where the Explanation to section 44AB defines the specified date as one month before the due date under section 139(1).

The consequence has changed

This is the part to read twice.

Under section 271B of the 1961 Act, failure to get the accounts audited or to furnish the report invites a penalty of 0.5 per cent of turnover or gross receipts, or ₹1,50,000, whichever is less. Section 273B lists section 271B and provides that no penalty is imposable if the person proves reasonable cause. In the 2025 Act, section 428(c), as substituted in 2026, makes the same default a fee: ₹75,000 for a delay of up to one month, and ₹1,50,000 thereafter. The fee is fixed. It does not vary with turnover, so for a business with turnover of ₹1 crore the old penalty was ₹50,000 and the new fee is ₹75,000 for a month and ₹1,50,000 beyond it. Section 446 of the 2025 Act, as amended, now deals only with crypto-asset reporting and has nothing to do with the audit.

On reasonable cause: section 470 of the 2025 Act says that no penalty is to be imposed for a failure under a listed set of sections, 441 to 468 among them, where reasonable cause is proved. Section 428 is not in the list, and it speaks of a fee. On its face, then, the relief that section 273B gave under the 1961 Act is not obviously available against the fee. That is our reading of the text. We have not found a decision on the point, and a reader should not treat it as settled either way.

For FY 2025-26, now

The date for FY 2025-26 under the 1961 Act was 30 September 2026. If an audit report was not furnished by then, the exposure is the section 271B penalty, and the relief under section 273B is available on proof of reasonable cause. The usual submission is the reason the audit was delayed (an illness, an unfinished reconciliation, a change of auditor), with the date the report was in fact furnished. Whether the date was extended by the Board for the year should be checked before anything else; an extended date changes whether there is a default at all.

In short

1. Check both limbs of the cash test before relying on the ₹10 crore limit.
2. Treat the audit date as 30 September, not the return date.
3. For tax year 2026-27 onwards, assume the default costs a fee, and do not assume the reasonable cause defence will be available against it.
4. For FY 2025-26, keep the reason for any delay in writing and the date the report was furnished.

This note is general information drawn from the statute as published on the Income Tax Department's website on 9 November 2026. It is not advice on your matter, and it cites no decided case.