Tax Audit and the Move to the Income-tax Act 2025
For FY 2025-26 the tax audit you are used to still applies, under section 44AB of the 1961 Act and on Forms 3CA or 3CB with 3CD. From tax year 2026-27 it is section 63 of the Income-tax Act 2025, on a single consolidated form, and there is a change of substance that widens who gets audited. That last point is the one worth reading carefully.
- Which Act applies to which year
- The thresholds, and the presumptive taxation interaction
- The change of substance in section 63
- Forms, and the consolidated replacement
The dividing line
FY 2025-26, assessment year 2026-27, is governed end to end by the Income-tax Act 1961 even though the return and the audit report are filed after 1 April 2026. Tax year 2026-27 onward is governed by the Income-tax Act 2025. Both are live at once and will be for some years, because assessments, appeals and updated returns for earlier years continue in the older vocabulary.
For a tax audit engagement this has an immediate practical effect: the section references inside the audit report for FY 2025-26 must be 1961 Act references. Using the new numbering because it is current is wrong.
| Concept | 1961 Act | 2025 Act |
|---|---|---|
| Tax audit | Section 44AB | Section 63 |
| Report on international and specified domestic transactions | Section 92E | Section 172. Section 173 is an interpretation provision, not an alternative successor, and the reporting obligation was not split between sections |
| Presumptive taxation | Sections 44AD, 44ADA, 44AE | Section 58, with the deemed rates in section 58(2) and section 61(2) |
| Period concept | Previous year and assessment year | Tax year |
For FY 2025-26, and carried over
| Assessee | Audit required where |
|---|---|
| Business | Total sales, turnover or gross receipts exceed ₹1 crore |
| Business with low cash dealing | The threshold rises to ₹10 crore where aggregate cash receipts do not exceed 5 per cent of total receipts and aggregate cash payments do not exceed 5 per cent of total payments. Both limbs must be met. |
| Profession | Gross receipts exceed ₹50 lakh |
| Presumptive cases | An assessee who declares profits below the deemed presumptive rates, in the circumstances set out below. The presumptive ceilings themselves are ₹2 crore for an eligible business under section 44AD, rising to ₹3 crore where cash receipts do not exceed 5 per cent of turnover or gross receipts, and ₹50 lakh for a specified profession under section 44ADA, rising to ₹75 lakh on the same cash-receipt test |
Thresholds are carried over unchanged into section 63 of the 2025 Act.
The presumptive ceilings above are the FY 2025-26 figures, for assessment year 2026-27. The higher ceilings came in with the Finance Act 2023 and have applied since assessment year 2024-25. From 1 April 2026 both regimes are consolidated into section 58(2) of the 2025 Act: serial number 1 of that table carries forward section 44AD with its ₹2 crore and conditional ₹3 crore ceilings and the 6 and 8 per cent computation, and serial number 3 carries forward section 44ADA with its ₹50 lakh and conditional ₹75 lakh ceilings and the 50 per cent computation. Section 58(9) treats a receipt by a cheque or bank draft that is not account payee as cash for the 5 per cent test.
One distinction is worth holding on to, because it is easy to lose. The five-year exclusion that follows a departure from presumptive taxation applies to the eligible business regime, under section 58(7) and (8). It does not apply to the professional regime that succeeds section 44ADA.
Section 63 may widen the audit population
Read this before assuming nothing changed
Under the 1961 Act, the audit trigger for declaring profits below the deemed presumptive rates was tied to section 44AD(4), which broadly required that the assessee had previously declared income under section 44AD and then departed from it. A business that always kept regular books and never used the scheme was not brought into audit merely because its profit was below 6 or 8 per cent. From tax year 2026-27 that condition is gone. Section 58(2), serial number 1, covers every eligible assessee carrying on an eligible business within the ceilings, with no requirement of a prior election. Section 58(3) then requires books under section 62 and an audit under section 63 where such an assessee claims profit below the deemed amount and its total income exceeds the maximum amount not chargeable to tax. Section 63(1), serial number 2, covers the same ground separately and contains no prior-use condition.
So a low-margin business that has always maintained regular books and has never declared presumptive income can require a tax audit for the first time. The total-income condition is what limits it, and it does not limit it everywhere: a firm has no basic exemption threshold, so an eligible partnership firm gets no relief from that qualification at all.
There is a drafting tension worth knowing about rather than papering over. Section 63's serial number 2 does not repeat the total-income condition that section 58(3) imposes. The safer and more coherent reading applies section 58(3)'s condition to businesses covered by section 58, and that is the reading used here. It should not be read as making every loss-making or low-income individual automatically liable to audit irrespective of total income.
The change first applies to tax year 2026-27, beginning 1 April 2026. FY 2025-26 and assessment year 2026-27 remain governed by the 1961 Act, and the Finance Act 2026 did not remove the wording. The businesses affected are the ones least prepared for it: small and medium businesses on thin margins that have never had a tax audit and have no relationship with an auditor. That is a conversation worth having early in the year rather than in September.
Three become one
For FY 2025-26 the forms are unchanged. Form 3CA where the accounts are already audited under another law, Form 3CB where they are not, in each case with the statement of particulars in Form 3CD.
From tax year 2026-27, a single Form 26 replaces all three. It is notified, not a draft: the Income-tax Rules 2026 were notified by G.S.R. 198(E) of 20 March 2026 with effect from 1 April 2026, and rule 47 prescribes Form 26 for an audit under section 63. Part A is the report where the accounts have already been audited under another law, corresponding broadly to Form 3CA. Part B is the report where they are not, corresponding broadly to Form 3CB. Part C carries the particulars of the assessee, numbered 1 to 8. Part D carries the detailed statement of tax audit particulars, numbered 9 to 53, with supporting schedules. Rule 47 requires the applicable report in Part A or Part B together with the particulars in Parts C and D.
So the notified form has 53 numbered particulars: eight on the assessee and 45 detailed items. The figure of around fifty-five clauses described the draft and is not the notified position. The due date is the specified date under section 63(5)(a), one month before the due date for the return under section 263(1), which preserves the one-month-before-return framework used under section 44AB. Where the return is due on 31 October, Form 26 is due on 30 September; where the return is due on 30 November, Form 26 is due on 31 October.
One trap for anyone checking this. The department's own Form 26 guidance describes the four Parts in a different order from rule 47 and from the notified form. Rule 47 and the gazetted form are what control.
| Obligation | Date for assessment year 2026-27 |
|---|---|
| Tax audit report | 30 September 2026 |
| Return, audit cases | 31 October 2026 |
| Report on international transactions | 31 October 2026 |
| Return, transfer pricing cases | 30 November 2026 |
As at 16 September 2026 the Central Board of Direct Taxes had not extended either date for assessment year 2026-27: the tax audit report remains due on 30 September 2026 and the return for a non-transfer-pricing audit case on 31 October 2026. Check both immediately before relying on them. For contrast, and stated correctly because the intermediate position is often quoted as the final one: for assessment year 2025-26 the audit report date was extended from 30 September first to 31 October 2025 and then again to 10 November 2025, and the related return date was ultimately extended to 10 December 2025 by Circular 15/2025 of 29 October 2025.
Which version of Form 3CD applies
For FY 2025-26, relevant to assessment year 2026-27, the applicable particulars are those in Form 3CD under rule 6G(2) of the Income-tax Rules 1962 as amended by Notification 23/2025, G.S.R. 207(E) of 28 March 2025, issuing the Income-tax (Eighth Amendment) Rules 2025 with effect from 1 April 2025. Because those amendments commenced on 1 April 2025 they apply to reports furnished after that date and govern the FY 2025-26 cycle. No later notification making a separate structural revision specifically for assessment year 2026-27 has been identified.
The 2025 amendment reaches further into the form than a reader expects. Section 44BBC was added to clause 12, obsolete sections were removed from clause 19, the micro and small enterprise disclosures in clause 22 and the reporting under clause 26 were revised, clauses 28 and 29 were omitted, transaction reporting under clause 31 was expanded, clause 36B was added for buyback receipts, and settlement expenditure reporting was added under clause 21.
Form 26 does not touch this. It applies only from tax year 2026-27, whose audit report is filed in 2027, so FY 2025-26 audits continue on Forms 3CA or 3CB with Form 3CD under the 1961 Act. For preparation, use the current portal schema and common utility rather than a locally held copy.
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If you are close to a threshold, or you run on margins below the presumptive deemed rates, that is the conversation worth having before the year end rather than after it.
Position as at 15 September 2026. Reviewed every six months.
This page is general information, not professional advice. Audit obligations in India turn on thresholds that moved recently and on standards whose effective dates have been deferred more than once. The small company definition changed on 1 December 2025, the Income-tax Act 2025 replaced the 1961 Act on 1 April 2026, two quality management standards were deferred on 31 March 2026, and a revised group audit standard has been proposed but not notified. Whether a particular obligation applies to you depends on your own numbers at your own year end. Take professional advice before acting on anything on this page. We are happy to be that adviser, but we do not act on a web page, ours or anyone else's, without one.