Detailed Explanation
How it works
The limits are Rs.1 crore for business (Rs.10 crore where cash is within 5%) and Rs.50 lakh for professionals. The report is filed in Form 3CA/3CB with 3CD by 30 September.
Applicability in one table
Business with cash receipts and cash payments each within 5%: audit only above Rs.10 crore turnover. Business beyond the 5% cash test: Rs.1 crore. Profession: Rs.50 lakh gross receipts (Rs.75 lakh where cash receipts ≤ 5%). Presumptive opt-outs: audit under 44AB(e) where 44AD(4) bites and income exceeds the basic exemption — the trigger most taxpayers miss.
What the exercise involves
The auditor issues Form 3CA (entities already audited under other law) or 3CB, with the 44-clause Form 3CD annexure. The clauses that consume the most preparation: 21 (disallowables), 22 (MSME dues and the 43B(h) interaction), 26 (43B statutory payments), 31 (cash loan provisions 269SS/269T), 34 (complete TDS/TCS compliance grid), and 44 (GST-wise expense break-up). The report is due one month before the return due date — 30 September for most audit cases.
Worked example of the cash test
A distributor with Rs.6 crore turnover receives 97% digitally but pays 8% of expenses in cash. The 5% test fails on the payments side — audit applies at the Rs.1 crore threshold, not Rs.10 crore. Redesigning vendor payments to close that 3% gap would have removed the audit obligation entirely — the cash test is a controllable design parameter, not a fixed fact. Penalty for failure: 0.5% of turnover, capped at Rs.1,50,000 (Section 271B), with reasonable-cause relief.
Frequently asked questions
When is a tax audit required?
When business turnover exceeds Rs.1 crore (Rs.10 crore if cash <= 5%) or professional receipts exceed Rs.50 lakh.
What is the penalty for no tax audit?
0.5% of turnover, up to Rs.1,50,000, under Section 271B.
This content is for general guidance only and does not constitute professional advice. Tax law changes frequently — verify the current position and consult a qualified Chartered Accountant before acting. Last reviewed: June 2026.