Tax Audit Limit in the New Income Tax Act 2025 - Section 63
The Income Tax Act 2025 introduces Section 63, which mandates tax audits for businesses and professionals who meet certain income and turnover criteria. Tax audits ensure financial transparency, prevent tax evasion, and help businesses comply with tax regulations. Understanding the tax audit limit in the new Income Tax Act is crucial for businesses and professionals to avoid penalties and ensure smooth compliance.
We have broken-down Section 63 in detail, including who needs a tax audit, tax audit limit in the new Income Tax Act, exemptions, deadlines, and examples to help you understand this critical requirement.
What is the new tax audit limit in the new Income Tax Act ?
Section 63 of the Income Tax Bill 2025 requires certain businesses and professionals to undergo a mandatory tax audit conducted by a qualified accountant. The objective is to ensure compliance with tax laws and accurate reporting of income. The tax audit limit in the new Income Tax Act determines which businesses and professionals are required to conduct a tax audit.
Who Needs a Tax Audit?
Criteria | Tax Audit Limit in New Income Tax Act | Example |
Businesses (Turnover-Based) | ₹10 Crores, if at least 95% of transactions are done via banking or electronic modes. | Example: A company with ₹11 crore turnover and 96% online transactions must undergo a tax audit. |
Professionals (Revenue-Based) | ₹50 Lakhs. | Example: A doctor earning ₹52 lakhs in consultation fees needs a tax audit. |
Businesses Under Presumptive Taxation (Section 58 & 61) | No specific limit. Required if declared profits are lower than the prescribed rate i.e 6%/8% and 50% for professionals. | Example:Â A Trader business showing 3% profit (instead of 6%/8%) needs a tax audit, irrespective of turnover or digital receipt/payment limit of 95% |
Do not file ITR as per Section 58/61 (earlier 44AD,ADA etc) | Get audit done for next 5 years | Get audit done for next 5 years |
Who are not required to get Tax Audit?
Businesses that declare profits as per Section 58(2)Â under the presumptive taxation scheme.
Certain businesses covered under Section 61(2).
Businesses already audited under another law (e.g., Companies Act) do not require a separate audit but must submit their tax audit reports on time.
Businesses that comply with the tax audit limit in the new Income Tax Act and do not exceed the prescribed turnover or profit thresholds.
The key change in tax audit requirements for businesses under presumptive taxation (Old Section 44AD & 44ADA and New Section 58 and 61)
The key change in tax audit requirements for businesses under presumptive taxation (Section 44AD & 44ADA) is that now, even if your turnover is within the presumptive taxation limit, but your declared profit is below the prescribed rate (6% for digital transactions, 8% for others), a tax audit is mandatory.
Earlier Position:
If turnover was up to ₹2 crore (later extended to ₹3 crore with 95% digital transactions) and profit was shown below 6%/8%, no audit was required if cash receipts and payments were within the 5% limit and assessee submits the balance sheet.
Even if profit was lower than presumptive rates, maintaining a balance sheet was enough—no audit was required.
New Position:
Now, even if your turnover is below ₹1 crore but profit is below the prescribed 6%/8%, you must get books of accounts audited, this applies even to comapnies who has turnover below ₹1 crore.
If turnover is above the presumptive limit of ₹2 crore/₹3 crore, and profit is less than 6%/8%, a tax audit is required, regardless of cash receipt/payment percentages.
Impact of the Change:
The relaxation due to 95% digital transactions (cash limit below 5%) no longer exempts businesses from audit.
More small businesses and professionals declaring lower profits will now fall under mandatory tax audit requirements.
Increased compliance burden on small taxpayers who earlier benefited from presumptive taxation without audit.
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Example
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 Case-1- Business with ₹80 lakh turnover, declaring ₹4 lakh profit (5%)—earlier no audit; now audit required.
Case-2 - Retailer with ₹1.5 crore turnover, declaring ₹7.5 lakh profit (5%)—audit required.
Case-3- Manufacturer with ₹2.5 crore turnover, profit ₹10 lakh (4%)—earlier no audit, now audit required.
Case-4- Trader with ₹4 crore turnover—profit declared 3% audit required even if cash payment and receipt are below 5%.
Now you have to check the Profit ratio for getting tax audit done, even if you have  more than 95% payment or receipt in digital mode.
Tax Audit Compliance & Deadline
The tax audit must be completed one month before the ITR filing due date.
If the ITR filing deadline is 31st October, the tax audit must be completed by 30th September.
Businesses audited under other laws (like Companies Act)Â can submit the same audit report before the specified date.
Understanding the tax audit limit in the new Income Tax Act helps businesses plan their financial records efficiently and avoid last-minute audits.
Penalty for Non-Compliance
Failure to conduct a tax audit or submit the audit report attracts a penalty
• 0.5% of total turnover/gross receipts, or
• ₹1,50,000, whichever is lower
Why is Tax Audit Important?
Ensures compliance with tax laws.
Prevents tax evasion and fraudulent reporting.
Reduces errors in financial statements.
Improves credibility for businesses and professionals.
Helps businesses stay within the tax audit limit in the new Income Tax Act, reducing unnecessary compliance burden.
Conclusion
Section 63 is a crucial part of the Income Tax Act 2025, ensuring that businesses and professionals maintain transparency in financial reporting. If you meet the criteria mentioned above, it is essential to consult a Chartered Accountant (CA) and get your tax audit completed before the deadline.
Staying informed about the tax audit limit in the new Income Tax Act will help businesses and professionals make informed financial decisions and comply with tax laws efficiently.
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