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Advanced Direct Tax Laws and Practice · Tax Audit

Tax Audit Applicability under Section 63 of Income-tax Act, 2025

Updated 11 October 2026 · Fact-checked

Section 63 requires a person carrying on business to get accounts audited if turnover exceeds ₹1 crore (₹10 crore if cash receipts and payments are each within 5%), and a professional if gross receipts exceed ₹50 lakh. It also applies to presumptive cases where lower profit is claimed.

Understand Tax Audit Applicability under Section 63

A tax audit is an audit of your books of account by an accountant, required by the Income-tax Act, 2025. It is separate from any audit under company law. Its purpose is to give the tax department a verified report of your accounts and tax-related particulars.

Section 63(1) sets two kinds of triggers. The first is size: for business, total sales, turnover or gross receipts above a limit; for profession, gross receipts above a limit. The second is a presumptive-taxation case: under section 63(1) Sl. No. 2, you carry on a business or profession referred to in section 58(2) or 61(2) and claim profit lower than the deemed profit under those sections.

The business limit is ₹1 crore. It becomes ₹10 crore only if two cash conditions are both met: cash receipts do not exceed 5% of total receipts, and cash payments do not exceed 5% of total payments. Fail either one and the ₹1 crore limit stays. The profession limit is ₹50 lakh, with no higher limit.

Section 58 gives presumptive relief to eligible assessees: 6% or 8% of turnover for business, and 50% of gross receipts for specified professions. Section 63(1) Sl. No. 2 itself has no total-income condition. Separately, section 58(3) adds a requirement for section 58 assessees: if the assessee claims lower profit than the deemed profit and total income exceeds the maximum amount not chargeable to tax, the assessee must keep books under section 62 and get them audited under section 63. Section 63(2) says the tax audit section does not apply where the profit declared is as per section 58(2) or 61(2). So declaring the presumptive profit takes you out of audit, even if your receipts are above the size limit.

The audit report is due by the specified date: one month before the due date for filing the return under section 263(1). If another law already requires audit of your accounts, section 63(4) lets you comply by getting that audit done by the specified date and furnishing its report along with the accountant's report in the prescribed form.

Key rules to remember

Business limit (general)
Turnover / gross receipts > ₹1,00,00,000
Audit is required for a person carrying on business. Applies unless the cash conditions for the higher limit are met.
Business limit (higher)
Limit = ₹10,00,00,000 if cash receipts ≤ 5% of total receipts AND cash payments ≤ 5% of total payments
Both conditions must be met. Cash is tested for the tax year. Receipts include sales, turnover and gross receipts amounts received.
Profession limit
Gross receipts > ₹50,00,000
There is no ₹10 crore-type relaxation for profession.
Presumptive case
Profit claimed < deemed profit under section 58(2) or 61(2) → audit under section 63(1) Sl. No. 2
Section 63(1) Sl. No. 2 has no total-income condition. Section 58(3) separately adds, for section 58 assessees claiming lower profit, the duty to keep books and get them audited where total income exceeds the maximum amount not chargeable to tax. Section 63(2): the section does not apply if you declare profit as per section 58(2) or 61(2).
Specified date
Due date for return under section 263(1) − 1 month
Both the audit and the furnishing of the report must be done by this date.
Non-account payee cheque or draft
Non-account payee cheque or bank draft = cash
Section 63(5)(b) deems such payments and receipts to be cash for the 5% tests.
Presumptive turnover caps (section 58)
Business: ₹2 crore (₹3 crore if cash receipts ≤ 5%); Profession: ₹50 lakh (₹75 lakh if cash receipts ≤ 5%)
Presumptive profit rates: 6% on banking or online mode receipts, 8% on the rest; 50% for specified professions.

How to solve Tax Audit Applicability under Section 63 questions

Use this order for any applicability question. It stops you missing a trigger or applying the wrong limit.

  1. 1Identify whether the person carries on business or profession, and whether the facts show an exempt presumptive case.
  2. 2Find the relevant figure: total sales, turnover or gross receipts for business, gross receipts for profession, for the tax year.
  3. 3For business, test the cash conditions: cash receipts as a percentage of total receipts, and cash payments as a percentage of total payments. Treat non-account payee cheques and drafts as cash.
  4. 4Pick the limit: ₹10 crore if both cash tests pass, else ₹1 crore. For profession, use ₹50 lakh.
  5. 5Compare the figure with the limit. The test is 'exceeds', so an amount equal to the limit is not caught.
  6. 6Check the presumptive route: if the assessee declares profit as per section 58 or 61, section 63(2) excludes audit. If lower profit is claimed than the deemed profit, section 63(1) Sl. No. 2 applies. For a section 58 assessee, section 58(3) separately adds the books and audit duty where total income exceeds the exemption limit.
  7. 7State the conclusion, then add the due date: one month before the section 263(1) due date, and mention section 63(4) if another law requires audit.

Quickest way: Three-gate check

When to use it: Use when the question gives turnover, cash percentages and a short fact pattern, and you have little time.

  1. Gate 1, size: business above ₹1 crore or profession above ₹50 lakh? If no, there is no audit on the size ground. Go to gate 3. If yes and it is a profession, audit applies on the size ground, unless profit is declared as per section 58(2) or 61(2) (see gate 3). Still go to gate 3. If yes and it is a business, go to gate 2.
  2. Gate 2, cash relief for business only: are both cash percentages (receipts and payments) at or below 5%? If yes, the limit becomes ₹10 crore. Recheck turnover against it: audit applies if turnover still exceeds ₹10 crore, otherwise there is no audit on the size ground. If either percentage is above 5%, the ₹1 crore limit stays and audit applies.
  3. Gate 3, presumptive: whatever the result of gates 1 and 2, check this too. If profit is declared as per section 58(2) or 61(2), section 63(2) excludes audit, even if receipts are above the size limit. Under section 63(1) Sl. No. 2, if profit claimed is lower than the deemed profit under section 58(2) or 61(2), audit applies, even if the size test did not. For a section 58 assessee claiming lower profit, section 58(3) separately requires books and audit where total income exceeds the maximum amount not chargeable to tax.
  4. Write the answer as: provision, facts, conclusion, then due date.

Common mistakes in Tax Audit Applicability under Section 63

  • Applying the ₹10 crore limit when only cash receipts are within 5%.

    Students remember '5% cash' as a single test.

    Fix: Check both receipts and payments. Both must be at or below 5% for the higher limit.

  • Applying the ₹10 crore relaxation to professionals.

    Students think the cash relief covers everything in section 63.

    Fix: The relaxation is in the business clause only. A professional is tested at ₹50 lakh of gross receipts.

  • Treating a limit equal to ₹1 crore as triggering audit.

    Careless reading of 'exceeds'.

    Fix: Audit applies only when the amount exceeds the limit. Exactly ₹1 crore does not trigger it.

  • Counting non-account payee cheques as non-cash.

    Students see a bank instrument and assume it is not cash.

    Fix: Under section 63(5)(b), a cheque or draft that is not account payee is deemed cash.

  • Requiring audit for every presumptive taxpayer.

    Confusing section 63(1) Sl. No. 2 with section 63(2).

    Fix: If profit is declared as per section 58 or 61, section 63(2) excludes audit, even if receipts are above the size limit. Audit applies under section 63(1) Sl. No. 2 when lower profit is claimed. Section 58(3) separately adds a books and audit duty for section 58 assessees claiming lower profit whose total income exceeds the exemption limit.

  • Giving the wrong due date.

    Students quote the return due date.

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

Worked examples

Example 1

Mehta Traders, a proprietary business in Surat, has turnover of ₹4,80,00,000 in the tax year. Assume total amounts received equal turnover. Cash receipts are ₹20,00,000 and cash payments are ₹18,00,000 out of total payments of ₹4,20,00,000. Is a tax audit required under section 63?

Show the solution
  1. Business, so the general limit is ₹1 crore. Turnover exceeds it, so test the cash relief.
  2. Cash receipts: the test uses the aggregate of all amounts received. We assume this equals turnover of ₹4,80,00,000. 20,00,000 ÷ 4,80,00,000 = 4.17%, which is within 5%.
  3. Cash payments: 18,00,000 ÷ 4,20,00,000 = 4.29%, which is within 5%.
  4. Both tests pass, so the limit becomes ₹10 crore.
  5. Turnover of ₹4.80 crore does not exceed ₹10 crore.
  6. Check the presumptive ground too. Mehta Traders does not claim lower profit under a presumptive scheme, and its turnover of ₹4.80 crore is above the section 58(2) Sl. No. 1 ceiling of ₹3 crore (the higher ceiling applies as cash receipts are within 5%). So the presumptive trigger does not arise.

Answer: No tax audit is required under section 63(1), as turnover is below the ₹10 crore limit and both cash conditions are met. The presumptive ground does not arise either, because turnover exceeds the section 58 ceiling and no presumptive scheme is claimed.

Example 2

Dr. Rao, a resident individual carrying on a specified profession under section 62(4), has gross receipts of ₹62,00,000 for the tax year, of which 2% is in cash. She declares profit of 40% of receipts. She is a specified assessee under section 58(11)(b). Is a tax audit required?

Show the solution
  1. She is a resident individual carrying on a specified profession, so she is a specified assessee. Her gross receipts of ₹62 lakh are within ₹75 lakh and cash receipts at 2% are within 5%, so she is within the section 58(2) Sl. No. 3 limit. Deemed profit is 50% of ₹62,00,000 = ₹31,00,000.
  2. She declares 40% of ₹62,00,000 = ₹24,80,000, which is lower than ₹31,00,000. She has not declared profit as per section 58(2), so section 63(2) does not exclude audit for her.
  3. Ground 1, size: the profession limit under section 63(1) Sl. No. 1(c) is ₹50 lakh. Gross receipts of ₹62 lakh exceed it, and the cash relief does not apply to profession. This ground applies only because she does not declare profit as per section 58(2). Had she declared 50% of receipts, section 63(2) would exclude audit despite receipts above ₹50 lakh.
  4. Ground 2, presumptive: she claims profit lower than the deemed profit, so section 63(1) Sl. No. 2 applies.
  5. Section 58(3) also applies to her: she claims lower profit and her total income exceeds the maximum amount not chargeable to tax, since profit of ₹24.80 lakh is far above it. So she must keep books under section 62 and get them audited under section 63.

Answer: Yes, a tax audit is required. Because she does not declare profit as per section 58(2), section 63(2) does not help her. Her gross receipts of ₹62 lakh exceed ₹50 lakh under section 63(1) Sl. No. 1(c). She also claims profit lower than the deemed 50%, so section 63(1) Sl. No. 2 applies, and section 58(3) separately requires books and audit as her total income exceeds the exemption limit. Audit must be completed and the report furnished by one month before the section 263(1) return due date.

Exam tips

  • Write the structure the paper wants: provision, facts, analysis, conclusion. Quote section 63(1) and the figures you test.
  • Show the cash percentage calculations explicitly. Marks go for the working, not just the verdict.
  • Always address whether the person is in business or profession first, since the limits differ.
  • Mention section 63(4) and the specified date in a short closing line when the question involves another audit law or a compliance deadline.
  • In presumptive-case questions, quote section 63(2) and section 58(3) together to show when audit does and does not apply.

Practice questions from Tax Audit

Tax Audit Applicability 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 Applicability under Section 63: frequently asked questions

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

It is ₹1 crore of total sales, turnover or gross receipts in the tax year. The limit rises to ₹10 crore if cash receipts and cash payments are each within 5% of the totals.

What is the tax audit limit for professionals?

A person carrying on a profession must get accounts audited if gross receipts exceed ₹50 lakh in the tax year. The ₹10 crore relaxation for business does not apply.

What is the difference between tax audit and statutory audit?

A tax audit is required by the Income-tax Act, 2025, and the accountant reports in the prescribed form on tax-related particulars. A statutory audit is required by another law, such as the Companies Act. Under section 63(4), if another law requires audit, you can meet the tax audit requirement by getting that audit done and furnishing its report with the accountant's report.

When is the tax audit report due?

The audit must be completed and the report furnished by the specified date, which is one month before the due date for filing the return under section 263(1).

Is a non-account payee cheque treated as cash?

Yes. Under section 63(5)(b), a payment or receipt by a cheque or bank draft that is not account payee is deemed to be in cash. This affects the 5% cash tests.