Library / Income-tax Act, 2025: The Professional's Master Guide

39. Tax Audit (Section 63)

The tax audit under section 63 is an examination of the books by a chartered accountant to report whether the income computed and the particulars furnished are true and correct, in the prescribed Form 26. It serves the department as a structured source of information and the taxpayer as a check before filing.

39.1 Who needs a tax audit

Taxpayer	Threshold
Business	Turnover above Rs. 1 crore; Rs. 10 crore if cash receipts and cash payments are each within 5% of the total
Profession	Gross receipts above Rs. 50 lakh
Presumptive cases	Where lower income is declared than the presumptive rate and income exceeds the exemption limit, and in other cases specified in section 58
Persons required to get accounts audited under other laws	The Companies Act audit report is furnished, with Form 26 reporting

39.2 Main areas reported in Form 26 and how to prepare

Area	Preparation tips
General information and nature of business	Update the business code, books maintained, method of accounting and any change in it
ICDS adjustments	Reconcile book profit with income under ICDS; document each adjustment
Depreciation	Prepare a block-wise schedule reconciled with the fixed asset register; flag cash purchases and subsidies
Amounts inadmissible (sections 35, 36, 37)	List TDS defaults with dates of payment; cash payments above limits; related party excess; MSME dues ageing; statutory dues paid after the due date
Loans and deposits	Report loans or deposits taken or repaid in cash above Rs. 20,000; confirm modes of receipt
Related party payments	Reconcile with the related party register and accounting notes
TDS and TCS compliance	Deduction, payment and statement details; delays and interest
Quantitative details	For traders and manufacturers: opening, purchases, sales, closing, yield and shortage
Brought forward losses and section 119	Loss schedule by year and change in shareholding
GST reconciliation	Turnover reported in GST returns compared with the books
Ratios	Gross profit, net profit, stock turnover, material consumed ratios

Key point

The auditor reports facts and his opinion; the taxpayer remains responsible for the return. Where the audit report shows a disallowance, include it in the return or be ready to explain why not, because CPC can make that adjustment automatically.

39.3 Due dates and consequences

Form 26 must be filed electronically at least one month before the return due date, that is by 30 September for most taxpayers. The taxpayer must accept it on the portal. Failure to get the accounts audited or furnish the report attracts a penalty of 0.5% of turnover or gross receipts, up to Rs. 1,50,000, unless there is reasonable cause.

Chapter summary

• Required above the turnover or receipts thresholds and in presumptive cases declaring lower income.

• Form 26 reports disallowances, TDS compliance, related party payments and reconciliations.

• Due one month before the return due date.