Tax Laws and Practice · Profits and Gains from Business and Profession

Maintenance of Books of Account and Tax Audit Limits

Q: What is the tax audit limit for a business under the Income-tax Act, 2025?

Under section 63, a business needs a tax audit if turnover exceeds ₹1 crore. The limit becomes ₹10 crore if cash receipts and cash payments are each within 5% of their totals.

Q: Who must maintain books of account for a profession?

Persons carrying on a specified profession under section 62(4), such as legal, medical, engineering, accountancy, company secretary and similar, must always keep books. Other professions must do so once the section 62(2) limits are crossed.

Q: Does a non-account-payee cheque count as cash?

Yes. Section 63(5)(b) treats a payment or receipt by a cheque or draft that is not account payee as cash. This affects the 5% cash test.

Q: When must the tax audit report be filed?

The report must be furnished by the specified date. This is one month before the due date for filing the return of income under section 263(1).

Q: Is a tax audit needed if I declare presumptive income?

Not if profit is declared as per section 58(2) or 61(2). If you claim lower profit, books and audit become necessary, as section 58(3) applies when total income exceeds the maximum amount not chargeable to tax.

Updated 11 October 2026 · Fact-checked

Section 62 says who must keep books of account: specified professionals always, and other businesses or professions once income or turnover crosses set limits. Section 63 requires an audit by an accountant when turnover or receipts exceed the limits, which rise if cash receipts and payments are each within 5%. Check the person, the limit, then the cash test.

Understand Maintenance of Books and Tax Audit

Every taxpayer with business or professional income needs records so the Assessing Officer can compute total income. The Act splits this into two duties: keeping books (section 62) and getting them audited (section 63).

Section 62 has two groups. First, a person carrying on a specified profession must always keep books. The specified professions are legal, medical, engineering, architectural, accountancy, technical consultancy, interior decoration, information technology and company secretary, plus any other profession the Board notifies. Second, any other business or profession must keep books if it crosses the limits in section 62(2).

Section 63 is the tax audit. It applies when business turnover or professional gross receipts cross the limits. The accountant examines the accounts and gives a report in the prescribed form. The report must be furnished by the specified date, which is one month before the due date for filing the return under section 263(1).

The presumptive scheme in section 58 connects the two. If you opt for presumptive income, you are generally outside the audit. If you declare profit lower than the deemed profit and your total income exceeds the maximum amount not chargeable to tax, you must keep books and get an audit.

Key rules to remember

Books: specified profession: Specified profession (section 62(4)) → books of account always required; No monetary limit applies to these professions.
Books: other business or profession (general): Income > ₹1,20,000 or turnover/gross receipts > ₹10,00,000 in any one of the three preceding tax years; For a newly set up business, the test is whether income or turnover is likely to exceed these limits in the tax year.
Books: individual or HUF: Income > ₹2,50,000 and turnover/gross receipts > ₹25,00,000 (as modified by section 62(2)(d)); Read the text of clause (d) carefully. It modifies clauses (a) and (b) for individuals and HUFs, and it uses 'and' between the two limits.
Books: presumptive claim of lower profit: Claimed profit < deemed profit under section 58(2) or 61(2) → books required; This is section 62(2)(c).
Audit: business: Turnover/gross receipts > ₹1 crore → audit; Section 63(1), Table Sl. No. 1(a).
Audit: business with low cash: Limit becomes ₹10 crore if cash receipts ≤ 5% of total receipts AND cash payments ≤ 5% of total payments; Both conditions must be met. A cheque or draft that is not account payee counts as cash.
Audit: profession: Gross receipts > ₹50 lakh → audit; The ₹10 crore relaxation is stated for business only, not for profession.
Audit: presumptive claim of lower profit: Profit claimed < deemed profit under section 58(2) or 61(2) → audit; Section 63(1), Table Sl. No. 2. Section 63(2) exempts those who declare profit as per section 58(2) or 61(2).
Specified date: Specified date = due date for return under section 263(1) − one month; Audit report must be furnished by this date.

How to solve Maintenance of Books and Tax Audit questions

Use the same sequence for any question on books or audit. Identify the person first, then test limits, then the cash condition.

1Classify the assessee: business, specified profession, or other profession. Note if an individual, HUF or firm.
2Check if the person is under presumptive taxation (section 58 or 61) and whether profit is declared at or above the deemed rate.
3For books of account, apply section 62: specified profession means always; otherwise test income and turnover limits, using the individual/HUF limits where relevant.
4For audit, take turnover for business or gross receipts for profession and compare with the limit in section 63.
5For business, test the cash condition: cash receipts within 5% of total receipts and cash payments within 5% of total payments. Treat non-account-payee cheques and drafts as cash.
6If the presumptive profit is not declared, check whether total income exceeds the maximum amount not chargeable to tax. If yes, books and audit apply.
7State the due date for the report: one month before the return due date.
8Write the conclusion clearly: audit required or not, with the section cited.

Quickest way: Three-gate check for audit

When to use it: Use for short numerical questions that ask whether a tax audit applies.

Gate 1: Is it a business or a profession? Profession limit is ₹50 lakh. Business limit is ₹1 crore.
Gate 2: For a business, compute cash receipts % and cash payments %. If both are 5% or less, the limit is ₹10 crore.
Gate 3: Is the assessee on presumptive income with profit declared at or above the deemed amount? If yes, no audit under section 63.
Compare turnover with the applicable limit. Turnover must exceed the limit, not equal it.

Common mistakes in Maintenance of Books and Tax Audit

Applying the ₹10 crore limit when only cash receipts are within 5%.
Students remember the receipts condition and forget the payments condition.
Fix: Test both receipts and payments. Both must be within 5% of their totals.
Applying the ₹10 crore limit to a profession.
Students blend the business and profession limits.
Fix: The higher limit appears in the business clause. A professional is audited above ₹50 lakh gross receipts.
Treating turnover exactly equal to the limit as auditable.
Loose reading of 'exceed'.
Fix: Audit applies only when turnover exceeds the limit. ₹1 crore exactly is not covered.
Ignoring that a non-account-payee cheque is cash.
Students think any cheque is a banking payment.
Fix: Section 63(5)(b) deems a cheque or draft that is not account payee to be cash. Add it to the cash total.
Saying a presumptive taxpayer never needs an audit.
Over-simplifying section 63(2).
Fix: The exemption applies when profit is declared as per section 58(2) or 61(2). If lower profit is claimed, audit applies, subject to income exceeding the basic exemption limit as per section 58(3).
Confusing the duty to keep books with the duty to audit.
Both sections use turnover figures.
Fix: Section 62 is about keeping books, with low limits. Section 63 is about audit, with higher limits. Answer each separately.

Worked examples

Example 1

Mehta Traders, a proprietorship in Surat, has turnover of ₹3,40,00,000 in the tax year. Cash receipts are ₹10,20,000 and cash payments are ₹6,00,000 out of total payments of ₹2,50,00,000. Is a tax audit required under section 63?

Show the solution

It is a business, so the basic limit is ₹1 crore. Turnover of ₹3.40 crore exceeds it.
Test the relaxation. Cash receipts ÷ turnover = 10,20,000 ÷ 3,40,00,000 = 3%. This is within 5%.
Cash payments ÷ total payments = 6,00,000 ÷ 2,50,00,000 = 2.4%. This is within 5%.
Both conditions are met, so the limit becomes ₹10 crore under section 63(1), Table Sl. No. 1(b).
Turnover of ₹3.40 crore does not exceed ₹10 crore.

Answer: No tax audit is required under section 63, because both cash conditions are met and turnover is below ₹10 crore. Mehta Traders must still keep books of account if section 62 applies.

Example 2

Dr. Rao, a resident individual doctor, has gross receipts of ₹62,00,000 in the tax year. Cash receipts are ₹1,00,000. Advise on books of account and tax audit.

Show the solution

Medicine is a specified profession under section 62(4), so books of account must be kept regardless of limits.
For audit, a profession is covered when gross receipts exceed ₹50 lakh. Receipts are ₹62 lakh.
The ₹10 crore relaxation is stated for business only, so it does not help here.
Check section 58 presumptive option: Table Sl. No. 3 needs receipts up to ₹50 lakh, or up to ₹75 lakh if cash receipts do not exceed 5%. Cash is ₹1,00,000, which is about 1.6% of ₹62,00,000, so the ₹75 lakh limit applies.
If Dr. Rao declares profit of at least 50% of gross receipts, that is ₹31,00,000, section 63(2) excludes audit. If lower profit is claimed and total income exceeds the basic exemption limit, books and audit apply.

Answer: Books must be kept. Audit under section 63 applies if Dr. Rao does not opt for the presumptive scheme, or if lower profit than 50% is claimed. If the presumptive profit of at least ₹31,00,000 is declared, no audit is required.

Exam tips

Write the section number with each limit. ICSI answers should cite section 62 for books and section 63 for audit.
Always show the cash percentage working. Marks are given for the calculation even if the final conclusion is wrong.
Separate business and profession in your answer. Students lose marks by using one limit for both.
Mention the specified date in any question that asks about the audit report, as one month before the return due date.
Do not forget presumptive-scheme interaction. Many questions combine section 58 with sections 62 and 63.

Practice questions from Profits and Gains from Business and Profession

Maintenance of Books and Tax Audit in other exams

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

CA IntermediateMaintenance of Books and Tax Audit

Maintenance of Books and Tax Audit: frequently asked questions

What is the tax audit limit for a business under the Income-tax Act, 2025?

Under section 63, a business needs a tax audit if turnover exceeds ₹1 crore. The limit becomes ₹10 crore if cash receipts and cash payments are each within 5% of their totals.

Who must maintain books of account for a profession?

Persons carrying on a specified profession under section 62(4), such as legal, medical, engineering, accountancy, company secretary and similar, must always keep books. Other professions must do so once the section 62(2) limits are crossed.

Does a non-account-payee cheque count as cash?

Yes. Section 63(5)(b) treats a payment or receipt by a cheque or draft that is not account payee as cash. This affects the 5% cash test.

When must the tax audit report be filed?

The report must be furnished by the specified date. This is one month before the due date for filing the return of income under section 263(1).

Is a tax audit needed if I declare presumptive income?

Not if profit is declared as per section 58(2) or 61(2). If you claim lower profit, books and audit become necessary, as section 58(3) applies when total income exceeds the maximum amount not chargeable to tax.