Tax audit applicability turns on one figure: a business needs a tax audit under section 63 of the Income-tax Act 2025 (section 44AB of the 1961 Act) when turnover is above ₹1 crore, rising to ₹10 crore only if cash receipts and cash payments are each 5% or less. This guide works through that test with real figures, then covers presumptive taxation, the company statutory audit, the LLP audit limit, CARO 2020 and the cost of a missed audit. The tax audit report for FY 2025-26 is due by 21 October 2026, after CBDT Circular 07/2026 extended it from 30 September.
How does the ₹10 crore tax audit limit under 44AB work?
The 44AB limit is ₹1 crore of turnover. It rises to ₹10 crore only if both tests are met: cash receipts are no more than 5% of total receipts, and cash payments are no more than 5% of total payments. Fail either test and the ₹1 crore limit applies. Professionals have a single limit of ₹50 lakh of gross receipts.
The same limits continue for tax year 2026-27 under the table in section 63 of the 2025 Act. Two details catch people out:
- A cheque or bank draft that is not account payee counts as cash for the 5% tests.
- Both tests look at the whole year, so a few large cash payments to suppliers can pull the limit back to ₹1 crore.
Example. Two trading businesses each have turnover of ₹6 crore. The first takes 3% of its receipts in cash but makes 7% of its payments in cash, so its limit is ₹1 crore and it needs a tax audit. The second takes 3% in cash and pays 4% in cash, so its limit is ₹10 crore and it does not.
When does a small business on presumptive tax still need a tax audit?
A business on presumptive tax avoids a tax audit only while it declares at least the presumptive profit: 6% of turnover received through banking channels and 8% of the rest, or 50% of gross receipts for a professional. Declaring less, with total income above the basic exemption limit, brings a tax audit under section 58 of the 2025 Act.
The business scheme is open to resident individuals, HUFs and partnership firms (not LLPs) up to ₹2 crore of turnover, or ₹3 crore with low cash receipts. The professional scheme is open to resident individuals and firms (not LLPs) up to ₹50 lakh, or ₹75 lakh with low cash receipts.
- A proprietor with ₹1.8 crore of turnover, all received digitally, who declares 6% (₹10.8 lakh) needs no tax audit.
- If the same proprietor opted for the scheme in any of the last five years and now declares 4%, with income above the basic exemption limit, a tax audit is needed under section 58(8) (sections 44AD(4) and 44AB(e) of the 1961 Act).
- A professional with ₹60 lakh of receipts, under 5% in cash, who declares 50% needs no audit. Declaring 40%, with income above the basic exemption limit, triggers one.
Under section 58(3), read literally, showing less than the presumptive profit can trigger an audit even for a business that never opted in. Experts disagree on this reading, so check it with your CA.
Does a company need a tax audit on top of its statutory audit?
Yes, if its turnover crosses the tax audit limit. Every company needs a statutory audit under the Companies Act whatever its size, but that audit does not replace the tax audit. Under the 1961 Act rules, a company files the tax audit report in Form 3CA with Form 3CD; a business not audited under another law uses Form 3CB.
The law treats an audit under another law as sufficient only if it is finished before the specified date and the accountant also gives the tax audit report in the prescribed form (the proviso to section 44AB and section 63(4)). A company with no turnover at all still needs its statutory audit, with the first auditor appointed by the Board within 30 days of incorporation.
LLP audit limit: ₹40 lakh turnover or ₹25 lakh contribution
An LLP needs its accounts audited under rule 24(8) of the LLP Rules 2009 when its turnover exceeds ₹40 lakh in the year or its partners' contribution exceeds ₹25 lakh. This is separate from the tax audit, which applies to an LLP only above ₹1 crore of turnover (₹10 crore with low cash) or ₹50 lakh of professional receipts.
Example. Greenline Design LLP (a made-up firm) has turnover of ₹60 lakh and partners' contribution of ₹10 lakh for FY 2025-26. Its turnover is above ₹40 lakh, so it needs an LLP audit and files audited accounts with Form 8 by 30 October 2026. Its turnover is within ₹1 crore, so no tax audit applies.
Rule 24(8) words the exemption with "or", and a literal reading would exempt an LLP inside either limit. The prevailing practice treats crossing either limit as requiring an audit, which is what the tool applies.
Is CARO 2020 applicable to your company?
CARO 2020 applies to the statutory audit of every company except banking, insurance and Section 8 companies, One Person Companies, small companies, and private companies that are not a holding or subsidiary of a public company and stay within ₹1 crore of paid-up capital plus reserves, ₹1 crore of bank borrowings at all times and ₹10 crore of revenue.
The small company exemption matters most. Since 1 December 2025, a small company is a private company with paid-up capital up to ₹10 crore and turnover up to ₹100 crore in the previous year. A private company with ₹2 crore of paid-up capital and ₹60 crore of turnover fails CARO's ₹10 crore revenue test, but as a small company it is outside CARO. Public companies, holding and subsidiary companies and Section 8 companies cannot be small companies.
Where CARO applies, the auditor reports on points such as physical inventory discrepancies of 10% or more, working capital limits above ₹5 crore and whether quarterly returns to lenders match the books, wilful defaulter status and whistle-blower complaints, according to the government's release on CARO 2020.
Worked example: three audit tests for one company
Bluepeak Foods Private Limited (a made-up company) has paid-up capital of ₹1 crore. For FY 2025-26 its turnover is ₹14 crore, with 2% of receipts and 3% of payments in cash, and its turnover for FY 2024-25 was ₹12 crore.
| Audit | Applies | Why | Deadline |
|---|---|---|---|
| Tax audit (section 44AB) | Yes | ₹14 crore is above the ₹10 crore limit, even with low cash | Report by 21 October 2026 |
| Statutory audit | Yes | Every company | Audited accounts at the AGM by 30 September 2026 |
| CARO 2020 | No | Small company: ₹1 crore paid-up and ₹12 crore turnover | Not applicable |
Its income tax return is due by 21 November 2026, the extended date for audit cases. For tax year 2026-27 the same company would need its tax audit report under section 63 by 30 September 2027, unless that date is extended.
What does a missed or late tax audit cost?
For tax year 2026-27 onwards, section 428(c) of the 2025 Act charges a fixed fee of ₹75,000 if the tax audit is not done and the report filed on time, for a delay of up to one month, and ₹1,50,000 after that. For FY 2025-26 and earlier years, a penalty under section 271B of the 1961 Act can apply instead.
- The section 428 fee is a fixed amount, while section 271B lets the Assessing Officer decide whether to levy a penalty.
- A late statutory audit usually delays the AGM and the AOC-4 filing, which carry their own consequences. Check the dates with the AGM due date calculator and the cost of late MCA forms with the MCA late fee calculator.
Common mistakes with audit applicability
Most wrong answers on audit applicability come from using one test where the law uses two.
- Assuming a digital business gets the ₹10 crore limit automatically. Cash payments count as much as cash receipts.
- Treating non-account-payee cheques as non-cash.
- Assuming an LLP can use the presumptive scheme to avoid a tax audit. It cannot.
- Treating ₹75 lakh as a tax audit limit for professionals. It is only the presumptive ceiling; the audit limit is ₹50 lakh.
- Applying the old small company limits when deciding CARO.
- Assuming the statutory audit report also covers the tax audit.
Choosing a structure for a new venture with audits in mind is easier with the business structure finder.
How Ofin can help
Ofin's company annual compliance package, from ₹19,999, covers the auditor appointment (ADT-1), financial statements, AGM papers, AOC-4, the annual return and the income tax return. For LLPs, LLP annual compliance from ₹7,999 covers Form 8, Form 11 and the return. Our accounting team keeps your books ready for audit and tracks the cash tests that set your tax audit limit.
