A tax audit is an examination of a taxpayer's books by a Chartered Accountant, resulting in a report on particulars specified in a prescribed form. It applies only where the conditions in the Income-tax law are met.
This describes the subject in general terms and is not advice; what applies depends on the facts, and the law changes.
Understanding the service
Applicability turns on turnover or gross receipts, whether the activity is a business or a profession, the proportion of transactions in cash in certain cases, and any presumptive scheme in use. The limits are set by law and have changed over time, so they are checked against the law in force for the period concerned.
It is separate from a statutory audit. A tax audit report does not replace an audit required by company or LLP law, and that audit does not replace the tax audit report.
Under the Income-tax Act, 2025, which applies from 1 April 2026, the provisions and forms have been renumbered and consolidated. The provision familiar as Section 44AB of the 1961 Act corresponds to a different section of the new Act.
When it becomes relevant
- Turnover or receipts that may cross the limits in the Income-tax law
- A presumptive scheme where the income declared is below the prescribed level
- A business wanting the position settled before the year closes
- A communication received from the department relating to a tax audit report
What the work usually covers
- Confirming whether the audit provision applies for the period
- Examining books of account, ledgers and supporting records
- Verifying the particulars the prescribed form requires, including depreciation, tax deducted at source, and certain loans, deposits and payments
- Reporting in the prescribed form
- Discussing observations with management before the report is finalised
Framework and sources
The law and professional standards this work is carried out under. Links open the official site.
How the work runs
- Confirm applicabilityEstablish whether the provision applies, and which Act and forms are relevant.
- Obtain recordsCollect financial statements, ledgers, bank statements and supporting records.
- ExamineTest the books against the particulars the form requires.
- Resolve queriesRaise points with management and agree corrections.
- ReportIssue the report in the prescribed form for electronic filing and acceptance.
A general sequence. Engagements differ, and the scope of each is agreed in writing.
Common questions
How do I know whether a tax audit applies to me?
It depends on turnover or receipts, the nature of the activity, cash transactions in certain cases, and any presumptive scheme in use, under the law in force for that period.
Does the Income-tax Act, 2025 change this?
The provisions and forms have been renumbered and consolidated. Which Act applies depends on the period concerned.