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Tax Laws and Practice · Procedural Compliance under Income Tax

Tax Audit under Section 63 of the Income-tax Act 2025

Updated 11 October 2026 · Fact-checked

A tax audit under section 63 is an audit of your business or profession accounts by an accountant. It applies when business turnover exceeds ₹1 crore (₹10 crore if cash receipts and payments are each within 5%), or professional receipts exceed ₹50 lakh. The report is due one month before the return due date.

Understand Tax Audit under Section 63

A tax audit is not the same as a company's statutory audit. It is an audit required by the Income-tax Act so that the department can rely on the accounts behind the business income you report. The accountant checks the books and reports in the prescribed form.

Section 63(1) says every person carrying on business or profession who meets a condition in column B of the Table must get the accounts of the tax year audited by an accountant before the specified date. There are two entries in the Table: the turnover or receipts limits (Sl. No. 1), and the case where you declare lower profit than the deemed profit under a presumptive scheme (Sl. No. 2).

For a business, the basic limit is total sales, turnover or gross receipts above ₹1 crore in the tax year. The limit rises to ₹10 crore if two cash tests are met. Cash receipts must not exceed 5% of the total amounts received. Cash payments must not exceed 5% of the total payments made. For a profession, the limit is gross receipts above ₹50 lakh.

The second entry applies to a person under the presumptive provisions referred to in section 58(2) or 61(2). If you claim profits lower than the deemed profits, you must get the audit done. If you declare profits as per those sections, section 63 does not apply (section 63(2)).

Two more points matter. If another law already requires an audit of your accounts, one audit is enough, but you must also furnish that report along with the accountant's report in the prescribed form (section 63(4)). And a cheque that is not account payee, or a bank draft that is not account payee, is treated as cash (section 63(5)(b)).

Key rules to remember

Business limit (basic)
Total sales, turnover or gross receipts in business > ₹1,00,00,000
Audit is needed only if the limit is exceeded. Exactly ₹1 crore does not attract audit.
Business limit (enhanced)
₹10,00,00,000 applies if cash receipts ≤ 5% of total receipts AND cash payments ≤ 5% of total payments
Both cash tests must be met. Failing either one brings back the ₹1 crore limit.
Profession limit
Gross receipts in profession > ₹50,00,000
The cash-based enhancement applies to business only, not to profession.
Presumptive case
Profit claimed < deemed profit under section 58(2) or 61(2) → audit required
If profit declared is as per those sections, section 63 does not apply.
Specified date
Specified date = one month before the due date for the return under section 263(1)
The audit report must be furnished by this date.
Cash deeming rule
Non-account-payee cheque or bank draft = cash
Counts for both receipts and payments in the 5% tests.
Fee for default
Section 428(c): ₹75,000 for delay up to one month; ₹1,50,000 thereafter
Payable if you fail to get accounts audited and furnish the report as required by section 63.

How to solve Tax Audit under Section 63 questions

Use the same sequence for any question asking whether a tax audit is needed, by when, and what happens on default.

  1. 1Identify whether the person carries on business or profession. The limits differ.
  2. 2Work out the correct figure: sales, turnover or gross receipts for business, gross receipts for profession, for the tax year.
  3. 3If it is a business, test the cash conditions: cash receipts as a share of all receipts, and cash payments as a share of all payments. Treat non-account-payee cheques and drafts as cash.
  4. 4Pick the limit: ₹1 crore, or ₹10 crore if both cash tests are passed. For profession use ₹50 lakh.
  5. 5Check for a presumptive scheme under section 58(2) or 61(2). If profit declared is lower than deemed profit, audit applies. If as per those sections, it does not.
  6. 6Check whether the accounts are already audited under another law. If so, state that one audit is enough, with both reports furnished by the specified date.
  7. 7Fix the specified date: one month before the return due date under section 263(1).
  8. 8Conclude clearly. If the person defaults, state the fee under section 428(c).

Quickest way: Three-check shortcut

When to use it: Use when the question gives turnover and cash figures and asks only whether audit applies.

  1. Compute cash receipts % and cash payments % first. Both ≤ 5% means limit is ₹10 crore; otherwise ₹1 crore.
  2. Compare turnover or receipts with the limit. Profession: compare with ₹50 lakh.
  3. Write the conclusion with section 63(1) and add the specified date and the section 428(c) fee in one line.

Common mistakes in Tax Audit under Section 63

  • Applying the ₹10 crore limit when only one cash test is met.

    Students remember the 5% condition but forget that it applies to both receipts and payments.

    Fix: Always compute both percentages. If either exceeds 5%, the limit stays at ₹1 crore.

  • Applying the ₹10 crore enhancement to a professional.

    Students merge the business and profession limits.

    Fix: The enhancement is in the business clause only. A professional's limit is ₹50 lakh of gross receipts.

  • Treating turnover equal to ₹1 crore as requiring audit.

    Careless reading of 'exceed'.

    Fix: The Act says exceed. At exactly ₹1 crore (or ₹50 lakh, or ₹10 crore) no audit is required under that limit.

  • Ignoring non-account-payee cheques when counting cash.

    Students count only physical currency.

    Fix: Section 63(5)(b) deems a non-account-payee cheque or draft to be cash. Add it to cash receipts and payments.

  • Saying the audit is needed for a person who declares profit as per the presumptive sections.

    Students see high turnover and assume audit.

    Fix: Section 63(2) excludes such a person. Audit arises only if profit is claimed lower than the deemed profit.

  • Stating the due date as the return due date.

    The two dates are linked and get mixed up.

    Fix: The specified date is one month earlier than the due date under section 263(1).

Worked examples

Example 1

Ravi Traders, a proprietary business in Pune, has turnover of ₹4,50,00,000 in the tax year. Total receipts were ₹4,60,00,000, of which ₹20,00,000 were in cash. Total payments were ₹4,00,00,000, of which ₹24,00,000 were in cash. Is a tax audit required under section 63?

Show the solution
  1. Cash receipts test: ₹20,00,000 ÷ ₹4,60,00,000 × 100 = 4.35%. This is within 5%.
  2. Cash payments test: ₹24,00,000 ÷ ₹4,00,00,000 × 100 = 6%. This exceeds 5%.
  3. Both tests must be met for the ₹10 crore limit. The payments test fails, so the limit is ₹1 crore (section 63(1), Table Sl. No. 1(a)).
  4. Turnover of ₹4,50,00,000 exceeds ₹1,00,00,000.

Answer: Yes. Ravi Traders must get its accounts audited by an accountant and furnish the report by the specified date, which is one month before the return due date under section 263(1).

Example 2

Meera, a practising architect in Chennai, has gross receipts of ₹62,00,000 in the tax year. Her accounts are not audited under any other law. She files her return on the due date but gets no audit done. What is the position, and what fee applies if the audit is completed 20 days after the specified date?

Show the solution
  1. Meera carries on a profession. The limit is gross receipts above ₹50,00,000 (section 63(1), Table Sl. No. 1(c)).
  2. Her receipts of ₹62,00,000 exceed ₹50,00,000, so audit is required.
  3. The report was due by the specified date, one month before the return due date under section 263(1).
  4. Failure to get the accounts audited and furnish the report attracts a fee under section 428(c).
  5. The delay is 20 days, which is up to one month, so the fee is ₹75,000 under section 428(c)(i).

Answer: A tax audit is mandatory for Meera. A delay of up to one month attracts a fee of ₹75,000 under section 428(c)(i). Had the failure continued beyond one month, the fee would be ₹1,50,000.

Exam tips

  • Start every answer with the provision: section 63(1) and the relevant limit, then apply the figures, then conclude.
  • Show the two cash percentages as separate calculations. Marks are given for working even if the final limit is wrong.
  • Remember the profession limit and that the enhanced limit does not apply to it.
  • Mention section 63(4) when the question says the entity is already audited under another law, such as a company.
  • Quote the fee under section 428(c) with both slabs when the question asks about default.

Practice questions from Procedural Compliance under Income Tax

Tax Audit under Section 63 in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Tax Audit under Section 63: frequently asked questions

Who is liable for tax audit under section 63?

A person carrying on business whose turnover or gross receipts exceed the limit, or a professional whose gross receipts exceed ₹50 lakh. A person who claims profits lower than deemed profits under section 58(2) or 61(2) is also liable.

What is the due date for the tax audit report?

The specified date is one month before the due date for furnishing the return of income under section 263(1). The report must be furnished by that date, signed and verified by the accountant in the prescribed form.

What is the penalty for not getting a tax audit done?

Section 428(c) provides a fee of ₹75,000 for delay up to one month and ₹1,50,000 thereafter, for failing to get accounts audited and furnish the report as required by section 63.

If my accounts are audited under the Companies Act, do I need another audit?

No separate audit is needed. Under section 63(4), it is enough to get the accounts audited under that law before the specified date and furnish that report along with the accountant's report in the prescribed form.