The financial year has closed and the audit clock is now running. Whether you owe an auditor a Form 3CD depends on turnover, cash-transaction ratios, and whether you have opted in or out of presumptive taxation. Here is the complete threshold map for F.Y. 2025-26, along with the compliance timelines you cannot afford to miss.

The first question to settle is a simple one: are you liable for a tax audit this year? Miss the answer and you are looking at a penalty of 0.5% of turnover capped at ₹1,50,000 under Section 271B, plus a delayed return, plus disallowances that will hurt more than the audit fee ever would.

The tax audit report for F.Y. 2025-26 must be uploaded by 30 September 2026, and the ITR by 31 October 2026 for audit assessees. That leaves you roughly six months to close the books, hand over records, and let your CA finish Form 3CD. The earlier you know whether you are in the audit net, the less painful this becomes.

The Governing Provision

Tax audit is governed by Section 44AB of the Income-tax Act, 1961. For A.Y. 2026-27, audit reports continue to be filed in Forms 3CA, 3CB and 3CD under Rule 6G of the Income-tax Rules, 1962. The substantive limits and mechanics for F.Y. 2025-26 remain exactly as they have stood since the Finance Act, 2020 introduced the enhanced ₹10 crore threshold, subsequently expanded by Finance Act, 2021.

The Core Turnover Thresholds

Here is the applicability table under Section 44AB for F.Y. 2025-26 at a glance:

The ₹10 crore threshold under the third proviso to Section 44AB(a) is not automatic. To claim it, both legs of the 5% test must be satisfied — cash inflows and cash outflows separately. A single leg failing throws you back to the ₹1 crore limit. And for this test, cheque and bank draft payments that are not account payee are treated as cash. Clients frequently miss this and get caught after year-end.

Presumptive Taxpayers: Higher Limits, But With Strings

Small businesses and professionals opting for presumptive taxation get materially higher turnover ceilings before an audit is triggered — provided the cash-transaction condition is met.

The trap most people miss: if you have declared presumptive income under Section 44AD in an earlier year and now want to declare profits lower than 6%/8% of turnover, and your total income exceeds the basic exemption limit, a tax audit is triggered under Section 44AB(e) regardless of turnover. The same principle applies to a professional under Section 44ADA declaring less than 50% of gross receipts. This is where a lot of small businesses walk into an audit without realising it — the moment your actual margin dips below the presumptive rate and you want to declare the real figure, Section 44AB kicks in.

Also remember: once you opt out of presumptive taxation under Section 44AD(4), you are locked out for the next five assessment years. Choose deliberately.

What Counts As "Turnover" — And What Does Not

The word "turnover" is where most disputes start. Practical positions the ICAI Guidance Note on Tax Audit under Section 44AB (Revised 2025) confirms:

• GST collected and paid to the government is not part of turnover if maintained in a separate account.
• Sales returns are deducted from turnover.
• For derivative and F&O trading, turnover means the absolute sum of positive and negative differences (settlement profits and losses added together), plus premium on options sold. This alone pushes many active traders past the ₹10 crore mark without realising it.
• For a commission agent, only the commission is turnover — not the gross value of goods handled on principal-to-principal basis.

If Another Law Already Requires an Audit

Companies audited under the Companies Act, 2013 and LLPs audited under the LLP Act do not repeat the audit — the same CA (or another) issues the tax audit report in Form 3CA (relying on the statutory audit) along with Form 3CD. Proprietors, partnership firms not otherwise audited, and AOPs use Form 3CB with Form 3CD.

What You Should Do Now

Pull your F.Y. 2025-26 trial balance and answer three questions this week: (1) What is my turnover or gross receipts figure on the definition above? (2) What percentage of my total receipts and total payments moved through cash or non-account-payee instruments? (3) Am I under presumptive taxation under Section 44AD or 44ADA, and is my declared profit above or below the presumptive rate? If any answer is unclear, hand the ledgers to your auditor by end of July — the September rush is real, and CAs cannot manufacture time in the last fortnight.

CA Praneeth Thunuguntla | Thunuguntla & Associates | Income Tax & GST Advisory