Tax Audit Key Provisions – AY 2026–27 (Section 44AB)

 


Tax audits play a critical role in ensuring transparency, accuracy, and compliance in income reporting. For Assessment Year (AY) 2026–27, Section 44AB of the Income-tax Act, 1961, along with allied provisions, continues to be a cornerstone for businesses and professionals. Understanding these provisions well in advance helps taxpayers avoid last-minute stress, notices, and penalties.

This blog provides a comprehensive overview of the key tax audit provisions for AY 2026–27, covering applicability, thresholds, reporting requirements, due dates, and common compliance pitfalls.

1. What is a Tax Audit under Section 44AB?

A tax audit is an examination of a taxpayer’s books of accounts by a Chartered Accountant to ensure that income has been correctly reported and tax provisions have been duly complied with. Section 44AB mandates certain taxpayers to get their accounts audited and submit the audit report in the prescribed format.

The objective of a tax audit is to:

  • Ensure accuracy of income computation

  • Verify compliance with income-tax provisions

  • Reduce the chances of tax evasion

  • Facilitate efficient assessment by tax authorities

2. Applicability of Tax Audit – AY 2026–27

For Businesses

A tax audit is mandatory if:

  • Total sales, turnover, or gross receipts exceed ₹1 crore in the previous year.

For Professionals

A tax audit is required if:

  • Gross receipts exceed ₹50 lakhs during the financial year.

These limits apply unless the taxpayer qualifies for enhanced thresholds based on cash transaction criteria.

3. Enhanced Turnover Threshold – Up to ₹10 Crore

To promote digital transactions, the Income-tax Act provides an enhanced tax audit threshold:

  • Up to ₹10 crore turnover for businesses

  • Applicable only if cash receipts and cash payments do not exceed 5% of total receipts and payments

If a business satisfies this condition, tax audit under Section 44AB is not required, even if turnover exceeds ₹1 crore.

⚠️ Important: This enhanced limit does not apply to professionals. Professionals continue to have a ₹50 lakh threshold.

4. Due Date for Tax Audit Report

For AY 2026–27, the due date for furnishing the tax audit report is:

📅 30th September 2026

Timely filing of the audit report is crucial, as delays can lead to penalties and disallowances.

5. Tax Audit Report Forms

Depending on the nature of the taxpayer and audit requirements, the following forms are applicable:

  • Form 3CA – Where accounts are already audited under any other law

  • Form 3CB – Where accounts are not audited under any other law

  • Form 3CD – Statement of particulars required to be furnished under Section 44AB

Form 3CD is the most detailed and critical part of the tax audit, covering disclosures on transactions, statutory compliance, and accounting practices.

6. Reporting of Cash Transactions

Tax auditors must report specified cash transactions under the following sections:

  • Section 269SS – Prohibits acceptance of loans or deposits in cash beyond prescribed limits

  • Section 269T – Prohibits repayment of loans or deposits in cash

  • Section 40A(3) – Disallowance of expenses paid in cash beyond ₹10,000

Non-compliance with these provisions can attract penalties equal to the amount of the transaction.

7. Disallowances under Sections 40(a) & 43B

Section 40(a)

Expenses such as interest, commission, professional fees, or contract payments may be disallowed if:

  • TDS is not deducted, or

  • TDS is deducted but not deposited within the due time

Section 43B

Certain statutory dues are allowed as deductions only on actual payment, such as:

  • GST

  • PF and ESI

  • Customs and excise duties

Auditors must carefully verify compliance with these provisions.

8. GST Turnover Reconciliation

One of the most important aspects of tax audit today is GST reconciliation. Taxpayers must ensure:

  • Reconciliation between books of accounts and GST returns

  • Matching of turnover reported in:

    • GSTR-1

    • GSTR-3B

    • Financial statements

Any mismatch may trigger scrutiny or notices from tax authorities.

9. Depreciation Reporting

Tax audit requires detailed reporting of depreciation, including:

  • Block-wise opening balances

  • Additions and deletions during the year

  • Applicable depreciation rates

  • Closing written down value (WDV)

Incorrect depreciation claims can lead to disallowances and future disputes.

10. Presumptive Taxation and Audit Trigger

Taxpayers opting for presumptive taxation schemes should be cautious:

  • Section 44AD (businesses)

  • Section 44ADA (professionals)

If a taxpayer:

  • Declares income below the prescribed percentage, and

  • Income exceeds the basic exemption limit

➡️ Tax audit becomes mandatory.

11. Related Party Transactions – Section 40A(2)(b)

Transactions with related parties must be disclosed in the tax audit report. These include payments to:

  • Directors

  • Relatives

  • Sister concerns

The objective is to ensure that expenses are not inflated to reduce taxable income.

12. Loans and Deposits in Cash

Auditors must report loans and deposits accepted or repaid in violation of:

  • Section 269SS

  • Section 269T

Such violations can attract severe penalties and scrutiny.

13. Inventory Valuation – Section 145A

Tax audit requires confirmation that inventory is valued in accordance with:

  • Section 145A

  • Applicable accounting standards

Incorrect valuation impacts profit computation and tax liability.

14. ICDS Compliance

Income Computation and Disclosure Standards (ICDS) apply to most taxpayers following mercantile accounting. Tax audit reports must disclose:

  • Deviations from ICDS

  • Impact on income

Non-compliance can result in adjustments during assessment.

15. Penalty for Non-Compliance

Failure to comply with Section 44AB can attract a penalty under Section 271B:

💰 Lower of:

  • 0.5% of turnover/gross receipts, or

  • ₹1,50,000

Timely audit and accurate reporting are the best ways to avoid penalties.

Conclusion

Tax audit compliance for AY 2026–27 goes beyond mere formality. With increased focus on data matching, GST reconciliation, cash transaction monitoring, and statutory compliance, businesses and professionals must adopt a proactive approach.

Early preparation, proper documentation, and professional guidance can help ensure smooth audits and peace of mind. Staying compliant today not only avoids penalties but also builds long-term credibility with tax authorities.

Need assistance with tax audit or compliance for AY 2026–27?

📞 Contact us today: +91 7305701454
📧 Email: auditsiva2@gmail.com
🌐 Website: www.taxlaservices.com

#TaxAudit #Section44AB #AY202627 #IncomeTaxCompliance #TaxAuditReport #GSTReconciliation #BusinessTax #ProfessionalCompliance #TaxlaServices #BestAuditorInTamilnadu

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