Tax Audit Limits for AY 2025-26: Everything Indian Businesses and Professionals Need to Know

A tax audit is a way for the Income Tax Department to check if your income, expenses, and other financial details are reported correctly in your tax return. It helps keep things fair and transparent for taxpayers and the government.

In India, tax audits are guided by Section 44AB of the Income Tax Act. The rules can change every year, depending on what the government decides in the Budget. For the Assessment Year (AY) 2025-26, which covers the Financial Year (FY) 2024-25, it’s important to know if you need a tax audit based on your turnover, profession, and how you receive payments.

This blog will explain the tax audit limits, who it applies to, and how recent rules affect you — whether you’re a business owner, a professional, or someone using the presumptive taxation scheme.

And In this guide, we’ll break down:

• What a tax audit is
• Who it applies to
• Key limits for businesses and professionals
• How presumptive taxation schemes affect audit needs
• Any updates from Budget 2024
• Penalties for non-compliance
• A checklist of documents needed for audit

What is a Tax Audit?

A tax audit is a check done by a Chartered Accountant (CA) to see if your business or professional income, expenses, and taxes are reported correctly in your Income Tax Return. It helps the Income Tax Department ensure that people and businesses follow the rules and don’t hide income or overstate expenses.

This audit is done under Section 44AB of the Income Tax Act, 1961. It applies to certain taxpayers based on their turnover or receipts during the financial year.

Purpose of a Tax Audit:

• To verify if your income is shown correctly.
• To check that expenses are real and not overstated.
• To confirm taxes are paid on time and as per the rules.
• To make tax filing smooth and transparent.

Applicability Under Section 44AB:

You need a tax audit if your income or turnover crosses specific limits. For AY 2025-26, which is for FY 2024-25, the same rules as previous years apply. So, tax audit limit for FY 2023-24 are still relevant.

Here’s when Section 44AB applies:

• Business: If your total turnover exceeds ₹1 crore, you must get a tax audit done.
• If 95% or more of your business transactions (receipts and payments) are done through digital modes like UPI, cards, NEFT, or RTGS, the limit is ₹10 crore.
• Professionals: If your total receipts are over ₹50 lakhs, a tax audit is required.

So, the tax audit limit for AY 2025-26 remains consistent with:

• tax audit limit for FY 23-24
• tax audit limit for AY 2024-25
• tax audit limit for FY 2023-24

Understanding this section helps you know whether you’re required to go through a tax audit — and avoid penalties by staying compliant.

Tax Audit Limit for AY 2025-26

Knowing whether you need a tax audit depends mostly on your total turnover or gross receipts and how you manage your business transactions—especially whether they are digital or cash-based.

Let’s break this down for both businesses and professionals with simple examples.

A. For Businesses

The standard tax audit limit under Section 44AB is:

• ₹1 crore: This is the basic limit. If your total turnover exceeds ₹1 crore, you must get a tax audit done.
• ₹10 crore: If at least 95% of your total business transactions (both receipts and payments) are done through digital modes, the audit limit increases to ₹10 crore.

This higher limit encourages businesses to go digital and reduce cash-based transactions.

Example 1:

Let’s say Mr. A runs a wholesale business.

• His total turnover in FY 2024-25 is ₹1.4 crore.
• 60% of payments were made in cash.
• Since he used cash for more than 5% of his transactions, the ₹10 crore benefit does not apply.
• He needs a tax audit because turnover > ₹1 crore.

Example 2:

Ms. B owns a retail store.

• Her total turnover in FY 2024-25 is ₹6.5 crore.
• 97% of her payments and receipts were done via UPI, credit card, and bank transfers.
• Since more than 95% of her transactions were digital, she is not required to get a tax audit — her turnover is under ₹10 crore.

Digital Transaction Criteria:

To use the ₹10 crore limit, you must meet both of these:

• 95% of receipts in non-cash modes
• 95% of payments in non-cash modes

These include:

• NEFT / RTGS
• UPI
• Credit/Debit cards
• IMPS
• Bank transfers
• Any other account payee modes

B. For Professionals

Professionals (like doctors, lawyers, consultants, etc.) have a simpler limit:

• If your gross receipts exceed ₹50 lakhs in the financial year, you are required to get a tax audit.

No digital/cash condition is applied here. The ₹10 crore rule is only for businesses, not professionals.

Example:

Mr. C is a freelance software developer.

• His total receipts for FY 2024-25 are ₹58 lakhs.
• Regardless of whether the payments were digital or cash, since receipts are more than ₹50 lakhs, he needs a tax audit for AY 2025-26.

Recap of Audit Thresholds for FY 2024-25 / AY 2025-26:

These thresholds are the same as those for:

• tax audit limit for AY 2024-25
• tax audit limit for FY 23-24
• tax audit limit for FY 2023-24

Applicability in Presumptive Taxation Schemes

In India, small businesses and professionals can choose a presumptive taxation scheme. This makes tax filing easier by allowing them to declare income at a fixed percentage of turnover, instead of maintaining full books of accounts.

The two main sections here are Section 44AD for businesses and Section 44ADA for professionals.

Section 44AD (For Businesses)

• This scheme is for small businesses like traders, shopkeepers, or other non-professional services.
• If your turnover is ₹2 crore or less, you can declare 8% of turnover as income (or 6% if receipts are digital).
• No need for a tax audit if you follow this scheme and declare the expected income.

But — if you declare income lower than the required percentage and your total income exceeds the basic exemption limit (₹2.5 lakhs for most individuals), then a tax audit becomes mandatory.

Example:

A trader earns ₹1.8 crore in turnover but reports only 4% income. He must get a tax audit if his total income crosses ₹2.5 lakhs.

Section 44ADA (For Professionals)

• Applies to individual professionals like doctors, architects, CA/CS, engineers, lawyers, etc.
• If gross receipts are up to ₹50 lakhs, you can declare 50% of receipts as income.
• Again, no audit is required if you opt for this scheme and follow the 50% rule.

But — if you declare lower income and total income is above ₹2.5 lakhs, you need a tax audit.

Important:

These audit rules still apply to:

• tax audit limit for FY 23-24
• tax audit limit for FY 2023-24
• tax audit limit for AY 2024-25

Recent Changes or Budget Updates (if any)

Budget 2024-25: Impact on Tax Audit Limits

As of now, the Budget 2024-25 did not change the tax audit limits under Section 44AB.

• The audit thresholds remain:
  • ₹1 crore for businesses
  • ₹10 crore for businesses with 95%+ digital transactions
  • ₹50 lakhs for professionals

So, the tax audit limit for AY 2025-26 is the same as the tax audit limit for FY 23-24 and FY 2023-24.

Government’s Push Towards a Digital Economy

Even though there were no direct changes to audit limits, the government continues to encourage digital transactions. Here’s how:

• Cash transaction limits are being tightened.
• Digital payments through UPI, IMPS, cards, etc., are being promoted through incentives and ease of use.
• Businesses using 95% digital modes benefit from the ₹10 crore tax audit limit.

This push for digital adoption aligns with India’s goal of reducing tax evasion and improving transparency in business.

Recent Changes or Budget Updates (if any)

Budget 2024-25: Any Changes in Tax Audit Limits?

The Budget 2024-25 brought no changes to the existing tax audit limits.

This means the same limits continue for:

• Tax audit limit for AY 2025-26
• Tax audit limit for FY 2023-24
• Tax audit limit for FY 23-24

Here’s a quick recap:

• ₹1 crore for businesses (standard limit)
• ₹10 crore for businesses with 95%+ digital payments and receipts
• ₹50 lakhs for professionals

So, if your business falls in any of these categories and crosses the threshold, tax audit is mandatory.

Push Towards a Digital Economy

Although there were no new audit rules, the government continues to promote digital practices, such as:

• Encouraging businesses to accept UPI, NEFT, IMPS, bank transfers, and card payments.
• Offering the ₹10 crore limit as a benefit for businesses that do 95% or more transactions digitally.
• Limiting cash dealings through other tax provisions and penalty clauses.

This means: If your business avoids cash, you may escape the burden of audit even at higher turnover levels.

Consequences of Not Conducting Tax Audit

Failing to conduct a tax audit, when it’s required, can lead to serious penalties under the Income Tax Act.

Penalty under Section 271B

• If you don’t complete your tax audit on time, the penalty is:
  • 0.5% of total turnover or gross receipts, or
  • ₹1,50,000, whichever is lower.

Example:

If your turnover is ₹2 crore, and you missed the audit:

• 0.5% of ₹2 crore = ₹1 lakh
• So, the penalty could be ₹1 lakh

Interest and Possible Prosecution

In extreme cases, intentional delay or avoidance of tax audit could lead to:

• Interest on unpaid tax
• Scrutiny or notices from the Income Tax Department
• In rare cases, prosecution under applicable sections

So, it’s better to comply than risk penalties and legal issues.

Documents Required for Tax Audit

To make the tax audit process smooth, business owners and professionals should be ready with the right documents.

Here’s a checklist:

Financial Documents

• Profit & Loss Account
• Balance Sheet
• Trial Balance
• General Ledger
• Sales and Purchase Register
• Cash Book and Bank Statements

Compliance Documents

• GST Returns
• TDS Returns and Challans
• Previous year’s ITR and audit report
• Fixed Asset Register
• Loan agreements and interest details
• Inventory details (if applicable)

Tips to Prepare for Tax Audit

• Go digital: Keep all your invoices, receipts, and payment records well-organized.
• Track transactions monthly: Avoid a year-end rush by reviewing your books regularly.
• Hire a professional: An experienced CA or accounting expert will ensure nothing is missed.
• Use cloud-based software: Tools like Zoho Books, TallyPrime, or QuickBooks can help automate and organize data better.

Being well-prepared avoids delays, reduces stress, and ensures compliance with tax audit limits for FY 2023-24 and AY 2025-26.

Common Mistakes to Avoid

Avoid these pitfalls to stay audit-ready:

• Underreporting income
• Inadequate proof for digital payments
• Choosing presumptive tax but showing unusually low profits
• Delays in filing audit reports

Tips to Stay Compliant

• Prefer digital transactions for most business activities
• Maintain accurate and updated books of accounts
• Schedule regular consultations with your CA
• Reconcile GST and ITR data routinely
• Ensure timely TDS deduction and payment

Conclusion

Understanding the tax audit limits for AY 2025–26 is essential for timely and accurate compliance. If your turnover exceeds ₹1 crore (or ₹50 lakhs for professionals), or if you’re under presumptive taxation with lower declared income, a tax audit may be mandatory.

Opting for digital payments not only raises your threshold to ₹10 crore but also simplifies financial management. When in doubt, consult a qualified tax professional—it’s always better to be proactive than to face penalties later.

Need expert help with your Tax Audit?

📞 Call NBFC Advisory: +91 93287 18979
🌐 Visit: nbfcadvisory.com