Section 44AB — Audit of Accounts of Certain Persons (Tax Audit)

Example 1 — Business Turnover (Digital payments)

Rajesh & Co. Pvt. Ltd. has turnover of ₹8,50,00,000 (₹8.5 crore) for PY 2025-26. Cash receipts = ₹35,00,000; Cash payments = ₹28,00,000. Total receipts = ₹8,50,00,000.

Step 1 — Check cash receipt %: ₹35,00,000 ÷ ₹8,50,00,000 × 100 = 4.12% ✓ (≤ 5%)

Step 2 — Check cash payment %: ₹28,00,000 ÷ ₹8,50,00,000 × 100 = 3.29% ✓ (≤ 5%)

Step 3 — Both conditions met → relaxed limit of ₹10 crore applies.

Step 4 — Turnover ₹8.5 crore < ₹10 crore threshold.

Result: Tax Audit u/s 44AB is NOT required.

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Example 2 — Presumptive Taxation Trap (44AD)

Ms. Iyer runs a trading business. Turnover for PY 2025-26 = ₹60,00,000 (₹60 lakh). She opts for Section 44AD and declares profit of ₹3,60,000 (6% of ₹60 lakh... but wait, all receipts are by cash, so minimum required = 8% = ₹4,80,000). She declares only ₹3,60,000. Her total income after deductions = ₹3,60,000, which is below the basic exemption of ₹3,00,000 — actually above it.

Step 1 — Turnover ₹60 lakh < ₹1 crore → no audit on turnover basis.

Step 2 — Declared profit ₹3,60,000 < 8% prescribed (₹4,80,000) → lower than 44AD rate.

Step 3 — Her income ₹3,60,000 > basic exemption limit (₹2,50,000 for non-senior).

Step 4 — Both conditions of Section 44AB(e) satisfied.

Result: Tax Audit IS mandatory. Audit report due by 30th September of AY 2026-27. Penalty for default = 0.5% × ₹60,00,000 = ₹30,000 (well within ₹1,50,000 cap).

• Students apply the ₹10 crore limit without checking BOTH cash conditions. The relaxed ₹10 crore threshold requires cash receipts ≤ 5% AND cash payments ≤ 5% — both must be satisfied, not just one.
• Confusing Form 3CA with Form 3CB. Use Form 3CA+3CD when accounts are already audited under another law (e.g., Companies Act for a company). Use Form 3CB+3CD when there's no prior statutory audit. A sole proprietor always gets 3CB+3CD.
• Forgetting the presumptive taxation audit trigger. Students think tax audit only applies when turnover crosses ₹1 crore. But if income is declared below the prescribed rate under 44AD/44ADA and exceeds basic exemption, audit is mandatory regardless of turnover size.
• Getting the penalty calculation wrong. Section 271B penalty is 0.5% of turnover or gross receipts — NOT 0.5% of income or tax. It is subject to a maximum of ₹1,50,000.
• Treating the due date as 31st July. The due date for filing the tax audit report (and ITR for audit cases) is 30th September of the Assessment Year — not the normal 31st July deadline that applies to non-audit cases.