Tax audit applicability

Start with the correct year

Tax Year 2026–27 uses section 63 of the Income-tax Act, 2025. FY 2025–26, assessed in AY 2026–27, continues under the earlier framework. The year in which the report is uploaded does not alone determine which law and form apply.

Review the main thresholds

The Income Tax Department’s guidance identifies a business threshold above ₹1 crore, increased to ₹10 crore where cash receipts and cash payments each stay within the respective 5% limits. The general professional-receipts threshold is above ₹50 lakh.

These are starting points. Review the applicable presumptive-tax provisions, exclusions and lower-income declarations before reaching the final audit conclusion. Do not treat the professional threshold as overriding an applicable statutory presumptive exception.

Calculate the cash tests separately

Prepare independent receipt and payment calculations. Do not test only cash sales, or offset cash receipts against cash expenses. Document which amounts enter each statutory total and how payment modes were classified.

Keep the calculation tied to bank and cash ledgers. A rounded management estimate is not sufficient evidence for a threshold conclusion.

Check presumptive-tax interactions

Identify the precise scheme, eligibility, declared income and relevant history. Determine whether the applicable provision creates an audit requirement or an exception. A loss, low margin or the word presumptive should not be used as a universal shortcut.

Record the reason for the conclusion, including how the business or profession was classified. Resolve mixed activities and unusual turnover calculations before finalising the return.

Use the applicable report

The department identifies Form 26 for tax audit under the 2025 Act. Earlier-period audits continue using the applicable Forms 3CA or 3CB with Form 3CD. Check the actual statutory due date and any valid extension for the taxpayer and period.

A statutory company audit and an income-tax audit have different reporting purposes. Coordinate the underlying accounts while confirming the additional tax reporting required.

Prepare an audit-ready file

• Trial balance, financial statements and bank reconciliations.
• Turnover or gross-receipts reconciliation and the cash-percentage working papers.
• Tax adjustments, depreciation and supporting schedules.
• Related-party transactions, deductions, tax payments and withholding records.
• Presumptive-scheme assessment, prior reports and relevant notices.

Example: only one cash condition is met

A business has ₹4 crore turnover and qualifies on the cash-receipts test, but its cash payments exceed the permitted percentage. It cannot rely on the enhanced ₹10 crore threshold merely because most customer receipts are digital. The separate payment condition must also be met, alongside any other applicable provisions.

Complete the reporting workflow

Agree the evidence requirements with the accountant, resolve qualifications and reconcile the report to the return. Track signing, portal submission and any required acceptance through to the final acknowledgement.

Retain the filed version and supporting schedules. If figures change later, assess the permitted correction or revision process rather than silently replacing the working papers.