The transition from the Income-tax Act, 1961, to the Income-tax Act, 2025, brings a major update to tax audits. Section 63 of the new Act replaces the familiar Section 44AB, moving away from old, multiple forms toward a single, unified report called Form No. 26 instead of multiple 3CA-3CD forms.

While the turnover and profit thresholds remain the same, Section 63 removes the audit safety cushion that previously protected taxpayers who chose not to use presumptive taxation. It also shifts the compliance timeline to a “Tax Year” basis instead of the earlier “Previous Year” system, aligning audit obligations directly with the year of assessment.

Position Under the Old Act -Section 44AB

Every person engaged in business or profession must get their accounts audited by a CharteredAccountant before the specified date if any of the following apply:

1. Business Turnover

• An audit is required if total sales, turnover, or gross receipts exceed ₹1 crore in a financial year.
• The limit increases to ₹10 crore if both:
• Cash receipts are not more than 5 % of total receipts, and
• Cash payments are not more than 5 % of total payments.
• Payments or receipts by non‑account‑payee cheques or drafts are treated as cash transactions.
• An audit is required if gross receipts from a profession exceed ₹50 lakh in a financial year.
• An audit is required if the taxpayer declares lower profits than the deemed profits under:
• Section 44AE (transport business),
• Section 44BB (non‑resident oil exploration), or
• Section 44BBB (foreign construction projects).
• An audit is required if the taxpayer declares lower profits than the deemed profits under Section 44ADA (professionals) and total income exceeds the basic exemption limit.
• Audit is required if Section 44AD(4) applies — that is, the taxpayer opted into presumptive taxation and then opted out within five years, provided income exceeds the exemption limit.
• Audit is not required for taxpayers who declare profits under Section 44AD or Section 44ADA within the prescribed turnover limits (₹2 crore for business, ₹50 lakh for profession).
• Audit is also not required for those earning income under Sections 44B or 44BBA (shipping and airline operations).
• If accounts are already audited under another law (e.g., Companies Act), submitting that audit report along with a short additional report under Section 44AB is sufficient.
• Specified Date: One month before the due date for filing the income‑tax return under Section 139(1).

2. Professional Receipts

3. Presumptive Business Schemes

4. Presumptive Profession Scheme

5. Presumptive Business Opt‑Out

Exemptions

Other Laws

If a business turnover or professional receipts cross the prescribed limits, or if you declare profits lower than the presumptive rates, you must get your accounts audited by a Chartered Accountant and submit the audit report before the due date.

Position Under the New Act -Section 63

In the new act, every person carrying on a business or profession must get their accounts audited by a Chartered Accountant before the specified date, the same as the old act

It only has to do if any of the following apply:

(a) Business turnover condition

• An audit is required if total sales, turnover, or gross receipts exceed ₹1 crore in a tax year.
• The limit increases to ₹10 crore if both:
• Cash receipts are not more than 5 % of total receipts, and
• Cash payments are not more than 5 % of total payments.
• Any payment or receipt by a non‑account‑payee cheque or draft is treated as a cash transaction.

(b) Professional receipts condition

• An audit is required if gross receipts from a profession exceed ₹50 lakh in a tax year.

(c) Lower‑profit declaration condition (new rule)

• An audit is required if the taxpayer carries on a business or profession covered under Section 58(2) or Section 61(2) (presumptive taxation categories) and declares profits lower than the deemed rates specified in those sections.

It has to be noted that if the taxpayer declares profits as per the presumptive rates under Section 58(2) or Section 61(2), this section does not apply, which means an audit is not needed.

The taxpayer must submit the audit report, signed and verified by a Chartered Accountant, by the specified date in the prescribed form.

If the taxpayer’s accounts are already audited under another law (for example, the Companies Act), it is enough to:

• Get those accounts audited before the specified date, and
• Submit that audit report along with the prescribed tax audit report.

Practical Implications

Illustration (New Act):

Ms Priya runs a grocery distribution business with a ₹2.5 crore turnover, all through banking channels (less than 5 % cash). Her profit margin is 2 %. Under the Old Act, she could file a regular return without an audit. Under the New Act, her business falls under Section 58(2); since her declared profit is below 6 %, Section 63 mandates an audit.

She now faces two choices:

• Option A: Declare profit at 6 % or above, accept higher tax liability, and avoid audit.
• Option B: Declare actual profit at 2 %, maintain books, and undergo an audit.

For thousands of small traders, distributors, and manufacturers, this change transforms audit from a conditional obligation into a near‑universal requirement for low‑margin businesses.

LLP Form 11 Filing for FY 2025-26 Due by May 30 on MCA Portal

Section 44AB (Old Act) vs Section 63 (New Act)

Under the old Income‑tax Act, 1961, Section 44AB required audit mainly when turnover or receipts go above the prescribed limits or when a taxpayer opted into and later opted out of presumptive taxation.

It allowed flexibility for businesses declaring profits below 6 % / 8 % could avoid audit if they never used the presumptive scheme. On the other hand, the new Section 63 of the Income‑tax Act, 2025, retains similar turnover and profit thresholds but introduces a stricter framework.

Audit is now triggered not by the taxpayer’s choice but by the level of declared profit. Any business covered under Section 58(2) or 61(2) that reports profits below the deemed rates must undergo an audit, even if presumptive taxation was never opted.

The new provision also replaces the “Previous Year” reference with a “Tax Year” structure, aligning audit obligations directly with the assessment year and effectively removing the audit safety net that existed under the old law.

Conclusion

Section 63 of the Income‑tax Act, 2025, introduces a major change in how tax audits are triggered. While the turnover and profit limits remain the same as under Section 44AB, the new law removes the earlier audit exemption for those who did not opt for presumptive taxation. It now links audit directly to the level of profit declared, making low‑profit businesses automatically subject to audit.

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