CS Professional · Advanced Direct Tax Laws and Practice

Tax Audit under the Income-tax Act, 2025: CS Professional Guide

Tax audit is an audit of your accounts by an accountant, required under section 63 of the Income-tax Act, 2025 when business turnover or professional receipts cross set limits. The accountant signs a prescribed report, filed one month before the return due date. To solve questions, test the limit, then the cash condition, then the date.

What this chapter covers

This chapter covers the audit of accounts that the Income-tax Act, 2025 requires for certain taxpayers. The main provision is section 63. It says who must get accounts audited, what the limits are, who signs the report, and by when. The chapter also covers the auditor's duties, the prescribed report forms, and the separate audit of registered non-profit organisations under section 348.

Section 63 is built on a table. Business needs an audit if sales, turnover or gross receipts exceed ₹1 crore in a tax year. The limit becomes ₹10 crore if cash receipts and cash payments each stay within 5% of the respective totals. A profession needs an audit if gross receipts exceed ₹50 lakh. A second condition covers presumptive taxation cases where you claim profit lower than the deemed profit. Most exam questions test these conditions on a fact pattern.

The chapter links to the rest of the paper in three ways. Presumptive schemes (sections 58 and 61) decide when section 63 applies or is excluded. Return filing and due dates decide the specified date for the audit report. Non-profit taxation decides when section 348 applies. If you study this chapter well, those linked chapters become easier.

Tax audit is a compact chapter with clear rules, and it suits written case-based answers. Examiners can give you a set of facts and ask whether an audit is needed, by when the report is due, and what happens under another law's audit. You can score well by stating the provision, applying the numbers, and concluding. The chapter also helps in practice, since a company secretary often advises clients on tax audit applicability and compliance dates.

Tax Audit: topics in the order to study them

1Tax Audit Applicability under Section 63Everything else depends on knowing when an audit is required, so learn the limits, the cash test and the presumptive cases first.
2Appointment of Auditor and EligibilityOnce you know who needs an audit, learn who can do it and how the accountant is chosen, including the compliance route when another law already requires an audit.
3Tax Audit Report and Prescribed FormsAfter the auditor is clear, study what is reported, in which form, and the specified date for furnishing it.
4Duties and Responsibilities of Tax AuditorWith the report understood, you can see what the auditor must examine, verify and certify, and where responsibility lies.
5Audit under Section 348 and Special AuditsThis is a separate regime for registered non-profit organisations, so study it last to avoid mixing it with section 63.

How to prepare Tax Audit

Treat this chapter as a set of tests you apply to facts. Build the tests first, then practise applying them in written answers.

Read section 63 slowly and write the table in your own words: business limit, profession limit, cash condition, presumptive condition.
Make a one-page chart of the conditions with examples, such as a trader with ₹3 crore turnover and cash receipts and payments under 5%, and one with higher cash dealings.
Learn the exclusion in section 63(2) and the rule in section 63(4) on audits under other laws, and note how each changes the answer.
Work out the specified date as one month before the return due date under section 263(1), and practise stating it for different taxpayers.
Study the report forms and the auditor's duties together, and list what the auditor must verify and report.
Read section 348 separately, noting that it turns on total income exceeding the maximum amount not chargeable to tax, before applying the Part's exemptions.
Write three full answers in the format of provision, analysis of facts, conclusion, and check each number against the Act.

Common mistakes in Tax Audit

Applying the ₹10 crore limit without checking both cash conditions.
Fix: Test receipts and payments separately. If either exceeds 5%, the ₹1 crore limit applies.
Treating non-account-payee cheques as non-cash.
Fix: Remember the deeming rule: a cheque or draft that is not account payee counts as cash for the 5% test.
Using the wrong due date for the audit report.
Fix: Subtract one month from the return due date under section 263(1) to find the specified date.
Applying section 63 to a person who declares presumptive profit.
Fix: Check section 63(2) first. If profit is declared as per section 58(2) or 61(2), section 63 does not apply.
Mixing section 348 with section 63.
Fix: Keep them apart. Section 348 is about registered non-profit organisations and turns on total income before the Part's exemptions exceeding the maximum amount not chargeable to tax.
Writing only the conclusion without the provision and facts.
Fix: Write the rule, apply the figures from the case, then conclude. Marks follow each step.

Last-day revision: Tax Audit

Section 63 requires audit by an accountant for the tax year's accounts, before the specified date.
Business: audit if sales, turnover or gross receipts exceed ₹1 crore in the tax year.
Business limit becomes ₹10 crore if cash receipts and cash payments each do not exceed 5% of the respective totals.
Profession: audit if gross receipts exceed ₹50 lakh in the tax year.
Presumptive cases under section 58(2) or 61(2): audit applies if you claim profit lower than the deemed profit.
Section 63 does not apply if you declare profit as per section 58(2) or 61(2).
Specified date is one month before the return due date under section 263(1).
A non-account-payee cheque or draft is treated as a cash payment or receipt.
If another law requires audit, you comply by getting that audit done and furnishing its report with the accountant's report in the prescribed form.
Section 348: a registered non-profit organisation with total income above the basic exemption amount, before the Part's exemptions, must get accounts audited and furnish the report.
The accountant signs and verifies the report in the prescribed form with the prescribed particulars.

Tax Audit practice questions

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.

Tax Audit: frequently asked questions

When is a tax audit required under the Income-tax Act, 2025?

Section 63 requires it if business turnover exceeds ₹1 crore or professional gross receipts exceed ₹50 lakh in the tax year. The business limit rises to ₹10 crore if cash receipts and cash payments each stay within 5%. It also applies in certain presumptive cases where lower profit is claimed.

What is the due date for the tax audit report?

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). The exact calendar date depends on the due date for that taxpayer.

Do I need a separate tax audit if my accounts are audited under another law?

Not a full second audit. Under section 63(4), it is enough to get the accounts audited under that law before the specified date. You then furnish that audit report along with the accountant's report in the prescribed form.

Is section 348 audit the same as tax audit under section 63?

No. Section 348 applies to registered non-profit organisations whose total income, before giving effect to that Part, exceeds the maximum amount not chargeable to tax. Section 63 applies to persons carrying on business or profession.