A tax audit is a compulsory examination of your books by a chartered accountant under section 63 of the Income-tax Act 2025 (the old section 44AB), triggered when turnover crosses prescribed limits. The CA certifies your accounts and files a detailed audit report. For FY 2026-27, audit-case income tax returns are due by 31 October 2026.
The classic triggers: business turnover above ₹1 crore, relaxed to ₹10 crore where cash receipts and cash payments each stay within 5% of totals, and professional gross receipts above ₹50 lakh. Presumptive taxpayers who declare below the deemed profit rate while exceeding basic exemption can also be dragged into audit. The CA files the audit report (the old Form 3CA/3CB with 3CD annexure) electronically ahead of the return, and the return itself then gets the extended 31 October deadline.
For a growing MSME, the practical shift when you cross into audit territory is discipline: books must be closed and reconciled months earlier, GST returns, TDS returns and financials must tie together, and the 3CD annexure will surface things like late MSME payments under the 43B(h) 45-day rule, cash transactions and loan movements. Treat the audit as a systems check, not a formality — the disclosures feed straight into the department's risk scoring.
The mistake that hurts most is timeline compression: handing the CA shoebox records in October. Audit report filing has its own earlier deadline ahead of the return, and penalties for failure to get audited are linked to turnover. Digital-heavy businesses should also actively track their cash percentage — staying under 5% cash keeps the ₹10 crore relaxed threshold available and can lawfully keep you out of audit altogether.
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Reviewed to the law in force in FY 2026-27. General information, not advice — confirm the position for your facts before acting.