# Tax Audit Limit 2026 and Form 26 under Section 63 for Companies

> Source: https://krystal7.com/insights/tax-audit-under-income-tax-act-2025-form-26
> Publisher: Krystal7 Consultants (Krystal7 Innovations Private Limited), Gurugram, India
> Author: CA Nandini
> Published: 23 Aug 2026; updated 01 Oct 2026
> Summary: A company needs a tax audit above INR 1 crore of turnover, or INR 10 crore if cash stays within 5 percent, and Form 26 starts from tax year 2026-27.

*Written by CA Nandini, Krystal7 Consultants. Last updated 1 October 2026.*

**A company needs a tax audit when its turnover in a year exceeds INR 1 crore. The limit rises to INR 10 crore when cash receipts and cash payments are each 5 percent or less of the totals. Section 63 of the Income Tax Act, 2025 now holds the rule, and Form 26 is the new report. FY 2025-26 audits still use section 44AB with Forms 3CA and 3CD. They are due 21 Oct 2026 after a CBDT extension, or 31 Oct 2026 with a transfer pricing report.**

This page covers the limits, forms, dates, penalty and fee, and the clauses that catch foreign owned companies. It ends with a worked example and a checklist.

## What is a tax audit and which section requires it now?

A tax audit is an audit of business accounts by a Chartered Accountant for income tax purposes. The accountant files a report with a clause by clause statement of particulars that the tax officer relies on. From 1 Apr 2026, section 63 of the Income Tax Act, 2025 requires it. Before that date, section 44AB of the Income Tax Act, 1961 did.

The Income Tax Act, 2025 (Act 30 of 2025) came into force on 1 Apr 2026. The Central Board of Direct Taxes (CBDT) says in transition FAQ Q4.31 that section 63 corresponds to section 44AB. The same answer says the thresholds "remain the same as were in the old Act". Rule 47 of the Income Tax Rules, 2026 (G.S.R. 198(E), 20 Mar 2026) prescribes the report.

The statutory audit under the Companies Act, 2013 gives an opinion on the financial statements. The tax audit reports on items that change taxable income. Examples are disallowed expenses, TDS defaults, payments to related parties, depreciation and loans.

The 2025 Act also replaces "previous year" and "assessment year" with one term, "tax year" (section 3). Tax year 2026-27 runs from 1 Apr 2026 to 31 Mar 2027. FY 2025-26 stays assessment year (AY) 2026-27 under the 1961 Act.

| Item | Income Tax Act, 1961 | Income Tax Act, 2025 |
|---|---|---|
| Section that requires the audit | 44AB | 63 |
| INR 1 crore limit for business | 44AB(a) | 63(1), Table serial 1(a) |
| INR 10 crore limit where cash is 5% or less | First proviso to 44AB(a) | 63(1), Table serial 1(b) |
| INR 50 lakh limit for a profession | 44AB(b) | 63(1), Table serial 1(c) |
| Accounts already audited under another law | Proviso to 44AB | 63(4) |
| Specified date (one month before the return due date) | Explanation to 44AB | 63(5)(a) |
| Cheque or draft that is not account payee counts as cash | Second proviso to 44AB(a) | 63(5)(b) |
| Rule that prescribes the report | Rule 6G | Rule 47 |
| Report forms | 3CA or 3CB, with 3CD | Form 26, Parts A to D |
| Who signs | Chartered Accountant (Explanation to 44AB) | Accountant under 515(3)(b) |
| Return due date section | 139(1) | 263(1)(c) |
| Late or missing report | Penalty under 271B | Fee under 428(c) |
| Transfer pricing report | 92E, Form 3CEB | 172, Form 48 |

## What are the tax audit limits for a company?

A company needs a tax audit when its total sales, turnover or gross receipts from business exceed INR 1 crore in the year. The limit becomes INR 10 crore if two conditions both hold. Cash receipts must be 5 percent or less of all amounts received. Cash payments must be 5 percent or less of all payments.

Section 63 applies to "every person" carrying on business or profession, and a company is a person. The limits apply to an Indian subsidiary of a foreign parent. They also apply to a foreign company's branch or project office, on the turnover of that Indian business. The word in the Act is "exceed", so turnover of exactly INR 1 crore does not trigger an audit.

Section 63 does not define turnover. We measure it as revenue from operations, net of GST collected, and leave out interest and other non operating income. A company close to a limit should agree the measure with its auditor early. The auditor will test it against the ICAI Guidance Note on Tax Audit.

A loss does not change the test. A subsidiary with INR 40 lakh of revenue and a large loss needs no tax audit. It still needs its statutory audit under the Companies Act, 2013.

| Receipts profile | Cash receipts (% of all receipts) | Cash payments (% of all payments) | Limit that applies (INR) | Audit at INR 8 crore turnover | Audit at INR 12 crore turnover |
|---|---|---|---|---|---|
| All bank transfer, card and UPI | 0% | 0% | 10 crore | No | Yes |
| Mostly digital, some cash | 3% | 1% | 10 crore | No | Yes |
| Exactly at the line | 5% | 5% | 10 crore | No | Yes |
| Cash receipts above the line | 6% | 1% | 1 crore | Yes | Yes |
| Cash payments above the line | 0% | 7% | 1 crore | Yes | Yes |
| Receipts by cheques that are not account payee | 8% (counted as cash) | 2% | 1 crore | Yes | Yes |

Source: section 63(1), Table serial 1, and section 63(5)(b) of the Income Tax Act, 2025.

## How do you test the 5 percent cash condition?

Compare cash receipts with all amounts received in the year, and cash payments with all payments made. Each ratio must be 5 percent or less. A cheque or bank draft that is not account payee counts as cash. If either ratio crosses 5 percent, the limit falls back to INR 1 crore.

The base is wider than sales. Section 63 speaks of the "aggregate of all amounts received including amount received for sales, turnover or gross receipts". On a plain reading, that includes loans and share capital received. The payments side uses matching words.

We test the ratios twice, with and without capital receipts and loans in the base, and act on the stricter result. UPI, card, NEFT, RTGS and account payee cheques are not cash. Petty cash spent at an office or a site is cash. A subsidiary between INR 1 crore and INR 10 crore of turnover should track both ratios every quarter.

## Does a company with a statutory audit also need a tax audit?

Yes, when its turnover crosses the limit. The Companies Act audit does not replace the tax audit. Section 63(4) lets the company build on it. The company must finish the statutory audit before the specified date. It then files that audit report with the accountant's report in the prescribed form.

For FY 2025-26, the prescribed form is Form 3CA with Form 3CD. Form 3CA is for a person whose accounts another law requires to be audited. Every company falls in that group, because the Companies Act, 2013 requires an audit. Form 3CB is for everyone else, such as a partnership firm with no other audit.

From tax year 2026-27, Form 26 takes over. Rule 47(1)(a) puts the report for a person audited under another law in Part A. Rule 47(1)(b) puts every other report in Part B. Rule 47(2) adds the particulars in Parts C and D, which every filer completes.

The timing trap sits in section 63(4)(a). The statutory audit must be complete before the specified date. If the board approves the accounts late, the tax auditor cannot sign on time. Our guide to the [statutory audit of a foreign owned Indian subsidiary](/insights/statutory-audit-foreign-owned-indian-subsidiary) sets out that calendar.

Section 63 does not bar the statutory auditor from doing the tax audit. Most subsidiaries use the same firm for both.

| Part of Form 26 | What it contains | Who completes it |
|---|---|---|
| Part A | Audit report where the accounts are audited under any other law | Companies, and others audited under another law |
| Part B | Audit report for a person not covered by Part A | Persons whose accounts no other law requires to be audited |
| Part C | Particulars of the assessee, clauses 1 to 8 (name, PAN, status, residential status, tax year) | Every filer |
| Part D | Statement of particulars, clauses 9 to 53, under headings A to K | Every filer |

Source: rule 47 of the Income Tax Rules, 2026 and the notified Form 26.

The department's Form 26 FAQs (FAQ 8 to 10) and guidance note letter the parts differently. They call the particulars Parts A and B and the two audit reports Parts C and D. Rule 47 and the notified form govern, so we follow them. Check the part letters on the income tax portal when you file.

## What is Form 26 and what replaced Forms 3CA, 3CB and 3CD?

Form 26 is the tax audit report under section 63 read with rule 47. It merges Forms 3CA, 3CB and 3CD into one form (transition FAQ Q4.33). Form 26 FAQ 2 says it applies to tax years beginning on or after 1 Apr 2026. So the first Form 26 covers tax year 2026-27 and falls due in 2027.

The CBDT calls it "a single smart, unified form with structured and standardised reporting" (Q4.34). Audit clauses align with the income tax return, and disallowances sit in one consolidated disclosure. The Form 26 FAQs add the working rules:

1. Every clause in Part D needs a Yes or No answer (FAQ 17).
2. A schedule is needed only when its clause is answered Yes (FAQ 15).
3. Schedules form part of the audit report, and the auditor verifies them (FAQ 16).
4. All references are to the Income Tax Act, 2025 and the Income Tax Rules, 2026 (FAQ 7).
5. An accountant under section 515(3)(b) signs, with UDIN and, for a firm, the firm registration number (FAQ 11 to 13).
6. The company accepts the form online to complete the filing (FAQ 14).

Form 26 numbers its particulars from 1 to 53. Form 3CD ran to 44 clauses, some with letters such as 30A and 36B.

## What changed in Form 26 compared with Form 3CD?

Form 26 adds disclosures on server location, a 180 day depreciation split, Form 145 remittances, MAT or AMT credit use and TDS transaction counts. Each audit observation now needs a type and its impact on profit. Our reading of the notified form finds no clause on CbCR, GAAR or demands under other tax laws.

| Topic | Form 3CD (FY 2025-26) | Form 26 (tax year 2026-27 onward) | Official basis |
|---|---|---|---|
| Answer format | Narrative answers per clause | Yes or No for every clause; schedules only when Yes | Form 26 FAQ 15 and 17 |
| Books and software | Clause 11: books kept and their address | Clause 14: address, accounting software, storage location with IP address and country, backup server address in India | Form 26 FAQ 18 |
| Depreciation | Clause 18 | Clause 36, with additions split between use of 180 days or more and less than 180 days | Form 26 FAQ 26 |
| MAT or AMT credit | No clause | Clause 39: use of MAT or AMT credit, with year wise entitlement and carry forward | Notified Form 26; Form 26 guidance note |
| Remittances abroad | No clause | Clause 43: remittances reported in Part D of Form 145 | Form 26 FAQ 27 |
| Transfer pricing adjustments | Clauses 30A and 30B | Clauses 40 and 41, including secondary adjustment and interest limitation | Form 26 FAQ 21 |
| TDS and TCS | Clause 34: amounts deducted and paid | Clause 50, plus the number of transactions reported and not reported | Form 26 FAQ 38 |
| Quantitative details | Clause 35 | Clause 53, only where there is a trading unit or manufacturing concern | Form 26 FAQ 28 |
| Audit observations | Free text | Tagged as test check, management representation, unable to verify, or other, with the impact on profit or book profit | Form 26 FAQ 35 and 36 |
| Auditor identity | Membership number; UDIN field | Membership number, FRN and UDIN mandatory | Transition FAQ Q4.34 |

Some Form 3CD clauses have no successor in the form we read.

| Form 3CD clause | Topic | Position in Form 26 |
|---|---|---|
| 29 | Share premium above fair value, section 56(2)(viib) | Omitted from Form 3CD from 1 Apr 2025; no successor |
| 30C | Impermissible avoidance arrangement (GAAR) | No clause found |
| 36B | Amounts received on a buy back, section 2(22)(f) | No separate clause; the clause 20 schedule still lists buy back payments under section 2(40)(f), which the Finance Act, 2026 omitted from 1 Apr 2026 |
| 41 | Demands raised or refunds issued under other tax laws | No clause found |
| 43 | Country by country report intimation, section 286 | No clause found; CbCR duties continue under section 511 |

We checked the Form 26 notified with the Income Tax Rules, 2026 on 27 Sep 2026. The department's guidance note on Form 26 does not list removed clauses. Check the form on the income tax portal before you rely on a gap.

A dropped clause does not remove the duty behind it. A subsidiary of a large group still files its CbCR intimation and master file on time. Our note on [master file and CbCR requirements](/insights/master-file-and-cbcr-requirements-in-india) covers those forms.

## Which form applies to FY 2025-26 audits done in 2026?

Forms 3CA and 3CD under section 44AB of the 1961 Act. Transition FAQ Q3.25 says the old Act's form applies "even if the actual filing occurs after 01.04.2026". Q4.32 and Form 26 FAQ 6 agree. A company files Form 3CA with Form 3CD.

Section 536(2)(c) of the 2025 Act keeps the 1961 Act alive for tax years that began before 1 Apr 2026. Transition FAQ Q4.39 says the portal supports old forms for AY 2026-27 and earlier.

The Form 3CD for FY 2025-26 is not the form many teams remember. The Income Tax (Eighth Amendment) Rules, 2025 changed it from 1 Apr 2025, as the footnotes in the department's consolidated form show.

| Form 3CD clause | Change by the Eighth Amendment Rules, 2025 | What it means for a subsidiary |
|---|---|---|
| 19 | References to sections 32AC, 32AD, 35AC and 35CCB removed | Fewer lines to answer |
| 22 | Substituted to cover amounts due to micro and small enterprises under section 15 of the MSMED Act, paid in time or not | Report late payments to micro and small suppliers |
| 26 | Section 43B wording revised; section 43B(h) sums sit outside its "paid before the return due date" test | Late payments to micro and small suppliers move to clause 22 |
| 28 and 29 | Omitted | No share premium test under section 56(2)(viib) |
| 31 | Loan, deposit and repayment items substituted, with codes for the nature of each amount | Every loan from the parent needs a code |
| 36B | Inserted: amounts received on a buy back under section 2(22)(f) | Relevant if the company tendered shares in a buy back |

Source: Form 3CD as published by the Income Tax Department, with amendment footnotes, read 27 Sep 2026.

Our guide to the [MSME Form 1 and 45 day payment rule](/insights/msme-form-1-45-day-payment-rule) explains the supplier payment test.

## What is the due date for the tax audit report?

One month before the return due date. A company's return is normally due on 31 Oct, so its audit is due on 30 Sep. With a transfer pricing report, the return is due on 30 Nov and the audit on 31 Oct. For FY 2025-26, CBDT Circular No. 07/2026 moved 30 Sep 2026 to 21 Oct 2026.

Section 63(5)(a) defines the "specified date" as one month before the due date under section 263(1). The table in section 263(1)(c) gives 30 Nov where a section 172 report is due, and 31 Oct for a company. The 1961 Act works the same way through the Explanation to section 44AB and section 139(1).

CBDT Circular No. 07/2026 of 28 Sep 2026 extended both dates for AY 2026-27. It covers the persons in serial 2 of the table in Explanation 2 to section 139(1). These are companies and other audited assessees without a transfer pricing report.

Their return moves from 31 Oct 2026 to 21 Nov 2026. Their tax audit report moves from 30 Sep 2026 to 21 Oct 2026, under clause (ii) of the Explanation to section 44AB. A Form 29B MAT report follows the tax audit date. Transfer pricing cases keep 31 Oct 2026 for the audit and Form 3CEB, and 30 Nov 2026 for the return.

The circular covers only AY 2026-27. It does not move the tax year 2026-27 dates in 2027.

| Filing | FY 2025-26 (AY 2026-27) | Tax year 2026-27 | Provision (1961 Act / 2025 Act) |
|---|---|---|---|
| Tax audit report, company with no international transactions | 21 Oct 2026 (extended from 30 Sep 2026), Forms 3CA and 3CD | 30 Sep 2027, Form 26 | 44AB and Circular No. 07/2026 / 63(5)(a) |
| Return, company with no transfer pricing report | 21 Nov 2026 (extended from 31 Oct 2026), ITR-6 | 31 Oct 2027 | 139(1) and Circular No. 07/2026 / 263(1)(c) |
| Tax audit report, company with a transfer pricing report | 31 Oct 2026, Forms 3CA and 3CD | 31 Oct 2027, Form 26 | 44AB / 63(5)(a) |
| Transfer pricing report | 31 Oct 2026, Form 3CEB | 31 Oct 2027, Form 48 | 92E / 172 with rule 85 |
| Return, company with a transfer pricing report | 30 Nov 2026, ITR-6 | 30 Nov 2027 | 139(1) / 263(1)(c) |
| Revised tax audit report after a later payment | 31 Mar 2027 (end of AY 2026-27) | 31 Mar 2028 | Rule 6G(3) / rule 47(3) |

Sources: sections 63 and 263, rule 47, section 44AB and rule 6G(3); Form 26 FAQ 5 and 6; transition FAQ Q3.25, Q4.32 and Q4.33; Form 48 guidance note; CBDT Circular No. 07/2026.

## What is the penalty for not getting a tax audit?

It depends on the year. For FY 2025-26, section 271B of the 1961 Act applies. The penalty is the lower of 0.5 percent of turnover and INR 1,50,000, and reasonable cause is a defence. From tax year 2026-27, section 428(c) of the 2025 Act charges a flat fee. It is INR 75,000 for a delay of up to one month and INR 1,50,000 after that.

Section 536(2)(d) of the 2025 Act keeps the old penalty rules for tax years that began before 1 Apr 2026. So a late FY 2025-26 report still falls under section 271B, with relief under section 273B.

The Finance Act, 2026 substituted section 446 from 1 Apr 2026. That section had carried the tax audit penalty, and the charge moved into section 428 as a fee. The Budget 2026 FAQs (section XV) say the fee applies from 1 Apr 2026 and arises automatically (Q.11). Q.12 adds that reasonable cause does not come into it, because the fee is automatic. Section 470, the successor to section 273B, deals with penalties, and this charge is a fee.

The fee can cost a small company more than the old penalty did. Under section 271B, 0.5 percent of turnover stays below INR 1,50,000 until turnover passes INR 3 crore. A company with INR 1.2 crore of turnover faced at most INR 60,000. Under section 428(c), the same company pays INR 75,000 for a one day delay.

| Point | FY 2025-26 (Income Tax Act, 1961) | Tax year 2026-27 onward (Income Tax Act, 2025) |
|---|---|---|
| Provision | Section 271B | Section 428(c) |
| Amount (INR) | Lower of 0.5% of turnover or 1,50,000 | 75,000 for delay up to one month; 1,50,000 after |
| How it arises | Assessing officer may levy | Automatic |
| Reasonable cause | Relief under section 273B | Not available (Budget 2026 FAQ XV, Q.12) |
| Transfer pricing report late | Section 271BA: 1,00,000 | Section 428(d): 50,000 up to one month; 1,00,000 after |

Budget for the fee in any plan that files late. Check on the income tax portal how it collects the fee before you upload a late Form 26.

## How does the tax audit link to the transfer pricing report (Form 48)?

They are separate reports, often signed by the same accountant. A company with international transactions files a transfer pricing report. That is Form 3CEB under section 92E for FY 2025-26 and Form 48 under section 172 from tax year 2026-27. The report moves the return date to 30 Nov, and so the audit date to 31 Oct.

The transfer pricing report certifies arm's length prices. The tax audit report asks about their tax effects. Form 3CD clause 30A and Form 26 clause 40 ask whether a primary adjustment was made and whether the excess money came back. Form 3CD clause 30B and Form 26 clause 41 cover interest limitation, 30 percent of EBITDA under section 177.

The two reports must agree. If Form 48 shows a service fee of INR 3 crore to the parent, clause 29 should show the same figure.

A company below the tax audit limit still files the transfer pricing report if it has international transactions. Its return date stays 30 Nov under section 263(1)(c). Our [Form 3CEB guide](/insights/form-3ceb-filing-a-complete-guide-to-transfer-pricing-compliance-in-india-2026) covers applicability and content. Our [transfer pricing advisory](/services/transfer-pricing-advisory.html) team prepares the study and the report alongside the tax audit.

## Which clauses trip foreign owned companies?

The same few clauses cause most of the work in a foreign owned subsidiary. They deal with payments to the parent, TDS on those payments, loans from the parent, and the tax regime option. The table maps each issue to its Form 3CD clause for FY 2025-26 and its Form 26 clause from tax year 2026-27.

| Issue | Form 3CD clause | Form 26 clause | What we check |
|---|---|---|---|
| Tax regime option (old 115BAA, now section 200) | 8a | 10 | Option exercised and kept; section 536(2)(f) saves options made under the 1961 Act |
| TDS on payments to the parent | 21(b) and 34 | 50 and 51 | Disallowance of 30% under section 35(b)(i) or 100% under section 35(b)(ii), the successor to section 40(a)(i) |
| Payments to the parent and group entities | 23 | 29 | Specified persons, section 40A(2)(b), now section 36(3) |
| Primary and secondary adjustment | 30A | 40 | Adjustment, repatriation in time, imputed interest |
| Interest to a non resident associated enterprise | 30B | 41 | Interest limitation at 30% of EBITDA, section 177 |
| Loans and deposits from the parent or directors | 31 | 45 | Each loan above the limit and whether it came through a permitted mode, under sections 185(1), 186(1) and 188(1), the successors to sections 269SS, 269ST and 269T |
| Loans or advances to the parent or a sister company | 36A | 48 | Deemed dividend, section 2(40)(e); trade advances are not deemed dividends (CBDT Circular 19/2017) |
| Payments to micro and small suppliers | 22 | 33 | MSMED Act interest and late payments |
| Statutory dues paid after the year end | 26 | 32 | Section 43B sums, now section 37(2)(a) to (f); late payments to micro and small suppliers under section 37(2)(g) sit in clause 33 |
| Shares issued to or bought from group companies | None since clause 29 was omitted | 47 | Transactions in unquoted shares |
| Money sent abroad | None | 43 | Remittances in Part D of Form 145 |
| Books on a group ERP hosted abroad | 11 | 14 | Server location, IP address, daily backup server in India under rule 46(8) |
| Head office expenditure of a foreign company branch | Not relevant to a subsidiary | 42 | Disallowance under section 60 (old 44C) |

A payment to a non resident without TDS is 100 percent disallowed under section 35(b)(ii). Our note on [TDS on payments to non residents](/insights/tds-on-payments-to-non-residents) covers rates and treaty claims.

Rule 46(8) of the Income Tax Rules, 2026 requires electronic books to stay accessible in India at all times. It also requires a daily backup on servers physically located in India. The rule covers books kept under section 62(1)(b), which includes a company carrying on business. Form 26 clause 14 asks whether rule 46(8) is met and where the Indian backup server sits.

Part D of Form 145 is for remittances that are not chargeable to tax (guidance note on Form 145). Clause 43 asks for the nature, number and amount of those remittances. Our [Form 15CA and 15CB guide](/insights/form-15ca-and-15cb-requirements-guide-2026) explains the parts.

## What documents does the tax auditor ask for?

The auditor needs the signed financial statements, the ledgers and evidence for each clause that applies. For a foreign owned company, the heavy items are intercompany agreements, TDS records on payments to the parent, loan records and the fixed asset register.

| Document | Used for | Form 3CD clause | Form 26 clause |
|---|---|---|---|
| Signed financial statements, statutory audit report, ledgers and cash book | Base for Form 3CA or Part A; the 5% cash test | 3CA | Part A |
| Fixed asset register with dates put to use | Depreciation and the 180 day split | 18 | 36 |
| TDS statements, challans and certificates | TDS compliance and disallowance | 21(b), 34 | 50, 51 |
| Forms 15CA and 15CB, or Forms 145 and 146 from 1 Apr 2026 | Remittances and TDS on non residents | 34 | 43, 50 |
| Intercompany agreements, invoices and the transfer pricing study | Related party payments and adjustments | 23, 30A, 30B | 29, 40, 41 |
| Loan agreements and bank statements showing the mode | Loans and deposits | 31 | 45 |
| Supplier MSME status and payment dates | Payments to micro and small enterprises | 22 | 33 |
| Challans for statutory dues paid after the year end | Section 43B items | 26 | 32 |
| GST registrations and GST returns | Indirect tax particulars | 4, 44 | 52 |
| Share allotment records and valuation reports | Unquoted share transactions | None | 47 |
| Accounting software, server and backup details | Where the books are kept | 11 | 14 |

The items that take longest are the TDS reconciliation and the MSME status of suppliers. Start them before the statutory audit closes.

## Who signs Form 26, and how is it filed and accepted?

An accountant as defined in section 515(3)(b) signs Form 26 (Form 26 FAQ 11). The accountant generates a UDIN, completes the form on the income tax portal and signs it with a digital signature. The company then accepts the form online, which completes the filing (Form 26 FAQ 14).

A firm quotes its registration number (FAQ 13). The UDIN is mandatory and comes from the signing accountant (FAQ 12). The accountant's upload alone does not finish the job. We ask companies to accept on the day we upload.

Rule 47(3) allows a revised report in one case. A later payment must change a disallowance under section 35 or section 37. The company then files the revised report before the end of the financial year after the tax year. For tax year 2026-27, that is 31 Mar 2028.

The 1961 regime has a similar rule. Rule 6G(3) allows a revised report when a later payment changes a disallowance under section 40 or section 43B. It must be filed before the end of the relevant assessment year, so by 31 Mar 2027 for AY 2026-27.

## What changed in 2026

Most of the change is renumbering. The fee is a real change in cost and in certainty.

| Change | Old rule | New rule | From | Instrument |
|---|---|---|---|---|
| Section requiring a tax audit | Section 44AB, Income Tax Act, 1961 | Section 63, Income Tax Act, 2025 | 1 Apr 2026 | Income Tax Act, 2025 (Act 30 of 2025) |
| Rule for the report | Rule 6G | Rule 47 | 1 Apr 2026 | Income Tax Rules, 2026, G.S.R. 198(E), 20 Mar 2026 |
| Report forms | Forms 3CA or 3CB with 3CD | Form 26 | Tax year 2026-27 | Rule 47; transition FAQ Q4.33 |
| Late or missing tax audit report | Penalty under 271B: lower of 0.5% of turnover or INR 1,50,000; reasonable cause relief | Fee under 428(c): INR 75,000, then INR 1,50,000; automatic | 1 Apr 2026 | Finance Act, 2026 (section 446 substituted, section 428 amended) |
| Late or missing transfer pricing report | Penalty under 271BA: INR 1,00,000 | Fee under 428(d): INR 50,000, then INR 1,00,000 | 1 Apr 2026 | Finance Act, 2026 |
| Transfer pricing report form | Form 3CEB, section 92E | Form 48, section 172, rule 85 | Tax year 2026-27 | Income Tax Act, 2025 and Rules, 2026 |
| FY 2025-26 audit report and return, no transfer pricing report | 30 Sep 2026 and 31 Oct 2026 | 21 Oct 2026 and 21 Nov 2026; transfer pricing cases keep 31 Oct and 30 Nov 2026 | 28 Sep 2026 | CBDT Circular No. 07/2026 |
| Year concept | Previous year and assessment year | Tax year | 1 Apr 2026 | Section 3 |
| Share premium clause | Clause 29 of Form 3CD | Omitted | 1 Apr 2025 | Income Tax (Eighth Amendment) Rules, 2025 |
| Micro and small supplier payments | Clause 22: MSMED interest only | Clause 22 covers payments within and beyond section 15 time | 1 Apr 2025 | Income Tax (Eighth Amendment) Rules, 2025 |

The limits did not change. Our overview of [what the Income Tax Act, 2025 changed for foreign owned companies](/insights/income-tax-act-2025-changes-for-foreign-owned-companies) covers the other sections.

## Worked example

Two hypothetical subsidiaries show how the limits, forms and dates combine. Neither is a client.

### IndiaCo Private Limited, INR 12 crore turnover with international transactions

IndiaCo Private Limited is wholly owned by a US parent. In FY 2025-26, its revenue from operations is INR 12 crore, mostly software services to the parent. It pays the parent a management fee of INR 45 lakh and interest on a loan.

Total amounts received are INR 13.5 crore. That is INR 12.3 crore from customers and an INR 1.2 crore loan from the parent. Of this, 97 percent arrived by bank transfer. The other 3 percent, INR 40,50,000, came in cash. Total payments are INR 11.8 crore, of which INR 9,44,000 went out in cash.

| Test | Working | Result |
|---|---|---|
| Cash receipts ratio | INR 40,50,000 ÷ INR 13.5 crore | 3.0%, within 5% |
| Cash payments ratio | INR 9,44,000 ÷ INR 11.8 crore | 0.8%, within 5% |
| Limit that applies | Both ratios within 5% | INR 10 crore |
| Turnover against the limit | INR 12 crore against INR 10 crore | Above the limit, so a tax audit is needed |
| International transactions | Services to the parent, management fee, loan interest | Transfer pricing report needed |
| FY 2025-26 forms | Company audited under the Companies Act, 2013 | Forms 3CA and 3CD; Form 3CEB; ITR-6 |
| FY 2025-26 dates | Transfer pricing case, so Circular No. 07/2026 does not apply | Audit and Form 3CEB by 31 Oct 2026; return by 30 Nov 2026 |
| Tax year 2026-27 forms, same facts | Rule 47(1)(a) and 47(2) | Form 26 Parts A, C and D; Form 48 |
| Tax year 2026-27 dates | Transfer pricing case | Form 26 and Form 48 by 31 Oct 2027; return by 30 Nov 2027 |

The higher limit does not help IndiaCo. Its turnover passes INR 10 crore, so the cash ratios stop mattering.

Now suppose IndiaCo misses a date.

1. FY 2025-26, report filed late. Section 271B applies. 0.5 percent of INR 12 crore is INR 6,00,000, so the INR 1,50,000 cap binds. IndiaCo can argue reasonable cause under section 273B.
2. Tax year 2026-27, Form 26 filed on 20 Nov 2027. That is 20 days after 31 Oct 2027, so the fee under section 428(c) is INR 75,000.
3. Tax year 2026-27, Form 26 filed on 10 Dec 2027. That is 40 days late, more than one month. The fee is INR 1,50,000, and reasonable cause does not reduce it.

IndiaCo's auditor will spend most time on three Form 3CD clauses. They are 23 (payments to the parent), 31 (the parent loan) and 34 (TDS on the fee and interest).

### CloudCo Private Limited, INR 8.5 crore turnover and cash paid at a site

CloudCo Private Limited is owned by a UK parent. Its FY 2025-26 turnover is INR 8.5 crore, all received by bank transfer. It pays site contractors partly in cash. Total payments for the year are INR 9 crore.

| Cash payments in the year (INR) | Cash payments ratio | Limit that applies (INR) | Tax audit at INR 8.5 crore turnover |
|---|---|---|---|
| 70,00,000 | 7.8% | 1 crore | Yes |
| 45,00,000 | 5.0% | 10 crore | No |
| 40,00,000 | 4.4% | 10 crore | No |

At INR 70 lakh of cash payments, CloudCo needs a tax audit by 21 Oct 2026, the date set by Circular No. 07/2026. If it pays contractors by bank and keeps cash at INR 40 lakh, it needs no tax audit, only its statutory audit. If it buys services from its UK parent, it still files Form 3CEB, and its return date stays 30 Nov 2026.

## Common mistakes

1. **Filing the FY 2025-26 audit on Form 26.** Form 26 starts with tax year 2026-27. Fix: file Form 3CA with Form 3CD (transition FAQ Q3.25 and Q4.32).
2. **Treating the statutory audit as the tax audit.** The Companies Act audit is only the base. Fix: file Forms 3CA and 3CD, or Part A of Form 26 from tax year 2026-27, under section 63(4).
3. **Using the wrong due date.** The date follows the return date. Fix: check for international transactions first. Then fix 21 Oct 2026 or 31 Oct 2026 for FY 2025-26, and 30 Sep or 31 Oct from tax year 2026-27.
4. **Testing the cash ratios on sales alone.** Section 63 uses all amounts received and all payments made. Fix: run the ratios with and without capital receipts and use the stricter result.
5. **Ignoring cheques that are not account payee.** They count as cash under section 63(5)(b). Fix: tag them in the bank book during the year.
6. **Leaving the report unaccepted on the portal.** The filing is complete only after the company accepts it. Fix: accept on the day of upload.
7. **Missing TDS on recharges from the parent.** The auditor must report the disallowance. Fix: review every intercompany invoice for TDS before the year end.
8. **Leaving out bank loans from the parent.** Clause 31 of Form 3CD covers loans above the limit in any mode. Clause 45(a) of Form 26 does too. Fix: list every such loan with its code or mode.
9. **Counting on reasonable cause for a late Form 26.** The Budget 2026 FAQs say the fee is automatic. Fix: plan the audit calendar backwards from 30 Sep or 31 Oct.
10. **Applying the 21 Oct 2026 extension to a transfer pricing case.** Circular No. 07/2026 covers only audited cases without a transfer pricing report. Fix: keep 31 Oct 2026 for Forms 3CA, 3CD and 3CEB.
11. **Assuming the extension carries into 2027.** The circular covers only AY 2026-27. Fix: plan the first Form 26 for 30 Sep 2027, or 31 Oct 2027 with Form 48.

## Tax audit checklist for a foreign owned company

1. Compute turnover as revenue from operations, net of GST, and compare it with INR 1 crore and INR 10 crore.
2. Calculate cash receipts and cash payments as a share of all receipts and payments, counting cheques that are not account payee as cash.
3. Record which limit applies and keep the working on file.
4. List every international transaction with group companies to see whether a transfer pricing report is due.
5. Fix the audit date: 21 Oct 2026 without a transfer pricing report (Circular No. 07/2026), 31 Oct 2026 with one.
6. Finish the statutory audit and board approval before that date.
7. Send the auditor the document list above, starting with TDS records and intercompany agreements.
8. Reconcile TDS on every payment to non residents with the statements filed.
9. Match the related party figures in the transfer pricing report and the tax audit report.
10. Review the draft Form 3CD clause by clause with the auditor.
11. Accept the report on the income tax portal on the day the accountant uploads it.
12. Record server and backup locations, the accounting software and asset put to use dates during tax year 2026-27, ready for Form 26.

Our [company compliance](/services/compliance-company.html) and [income tax return](/services/itr.html) teams run this checklist for foreign owned subsidiaries. To have us test your limit and dates, send last year's Form 3CD through our [contact page](/contact).

## Frequently Asked Questions

### Does GST count towards turnover for the tax audit limit?
Section 63 of the Income Tax Act, 2025 does not define turnover. We measure it net of GST where the company records GST collected as a liability and not as income. A company near the INR 1 crore or INR 10 crore limit should agree the measure with its auditor before the year end. The auditor will test it against the ICAI Guidance Note on Tax Audit.

### Does a loss making or pre revenue subsidiary need a tax audit?
No, unless its turnover exceeds the limit. Section 63 turns on sales, turnover or gross receipts, not on profit. A subsidiary with INR 40 lakh of revenue and a loss needs no tax audit. It still needs a statutory audit under the Companies Act, 2013 and must file its return by the due date.

### Do share capital and loans from the parent count in the 5 percent cash test?
Section 63(1) measures cash receipts against the aggregate of all amounts received. On a plain reading, share capital and loans received sit in that base. They rarely arrive in cash, so they usually lower the cash ratio. We test the ratio with and without them and use the stricter result.

### Can the statutory auditor also sign the tax audit report?
Yes. Section 63 of the Income Tax Act, 2025 does not bar it, and most foreign owned subsidiaries use the same firm. The signatory must be an accountant under section 515(3)(b). Form 26 makes the membership number, firm registration number and UDIN mandatory.

### Is Form 3CA or Form 3CB right for a Private Limited company?
Form 3CA. A Private Limited company is audited under the Companies Act, 2013, so it uses the form for persons audited under another law, with Form 3CD. From tax year 2026-27, the same company uses Part A of Form 26 under rule 47(1)(a), plus Parts C and D.

### Has the 30 Sep 2026 tax audit due date been extended?
Yes. CBDT Circular No. 07/2026 of 28 Sep 2026 moved it to 21 Oct 2026 for AY 2026-27. It covers companies and other audited assessees without a transfer pricing report, whose return moves to 21 Nov 2026. A company with a transfer pricing report keeps 31 Oct 2026 for the audit and Form 3CEB, and 30 Nov 2026 for the return.

### When is the first Form 26 due?
The first Form 26 covers tax year 2026-27, which runs from 1 Apr 2026 to 31 Mar 2027. A company without a transfer pricing report files it by 30 Sep 2027. A company that files Form 48 has until 31 Oct 2027. Form 26 FAQ 5 and section 63(5)(a) set these dates, subject to any CBDT extension.

### What is the fee if Form 26 is filed 20 days late?
INR 75,000 under section 428(c) of the Income Tax Act, 2025. That rate covers a delay of up to one month. After one month, the fee is INR 1,50,000. The fee applies from tax year 2026-27. A late FY 2025-26 report falls under section 271B of the 1961 Act instead.

### Can a company plead reasonable cause against the section 428(c) fee?
No. The Budget 2026 FAQs (section XV, Q.11 and Q.12) say the fee arises automatically, so reasonable cause does not come into it. Section 470 of the Income Tax Act, 2025, the successor to section 273B, deals with penalties. Section 271B of the 1961 Act works differently. There, section 273B lets a company avoid the penalty by showing reasonable cause.

### Can a tax audit report be revised after filing?
Only in a narrow case. Rule 47(3) of the Income Tax Rules, 2026 allows a revised report when a later payment changes a disallowance under section 35 or section 37. The revised report must reach the portal before the end of the financial year after the tax year, so by 31 Mar 2028 for tax year 2026-27.

### Does a liaison office of a foreign company need a tax audit?
No. A liaison office does not carry on business in India, so section 63 has no turnover to test. It files an annual statement instead. That is Form 49C under the 1961 Act, and Form 162 under section 505 of the 2025 Act from tax year 2026-27. Our [liaison office guide](/insights/liaison-office-in-india-rbi-rules) covers the rules.

### Does a branch office of a foreign company need a tax audit?
Yes, once the turnover of its Indian business crosses the limit. A branch carries on business in India, so section 63 applies. The report goes in Part A of Form 26 if another law requires an audit of those accounts, and in Part B otherwise. Clause 42 asks about head office expenditure disallowed under section 60.

### Does Form 26 ask about the country by country report?
Our reading of the notified Form 26 finds no CbCR clause, unlike clause 43 of Form 3CD. The CbCR duties themselves continue under section 511 of the Income Tax Act, 2025. A group entity still files its CbCR intimation and master file by their own due dates, whatever the tax audit report shows.

### Why does Form 26 ask where the accounting server is?
Clause 14 of Form 26 asks for the address of the books, the accounting software, the storage location with IP address and country, and the backup server address in India. It also asks whether rule 46(8) of the Income Tax Rules, 2026 is met, which requires a daily backup on servers in India. A subsidiary on a group ERP hosted abroad should document its Indian backup before tax year 2026-27 closes.

### Does a company below the tax audit limit still file a transfer pricing report?
Yes, if it has international transactions with associated enterprises. The transfer pricing report does not depend on turnover. The return due date also stays 30 Nov under section 263(1)(c) of the 2025 Act. For FY 2025-26, such a company files Form 3CEB by 31 Oct 2026 and the return by 30 Nov 2026.

### Which return form goes with the FY 2025-26 tax audit?
A company files ITR-6 for AY 2026-27 under the 1961 Act. The CBDT transition FAQs confirm that the old Act's ITR forms apply to AY 2026-27 (Q3.6 and Q3.11). The return must match the figures in Forms 3CA and 3CD. New return forms under the 2025 Act start from tax year 2026-27.

## Sources

- Income Tax Department, Section 63 of the Income Tax Act, 2025 (Tax audit), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-63-130
- Income Tax Department, Rule 47 of the Income Tax Rules, 2026 (Report of audit of accounts under section 63), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/rule-47-5
- Income Tax Department, Form No. 26 (Audit report and statement of particulars), read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/20117/16172450/Form-No-26.pdf/6b6807ee-0a0e-ad6c-0c14-1064ff523fef
- Income Tax Department, Guidance note on Form 26, read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-26
- Income Tax Department, Form No. 26 Frequently Asked Questions, read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/d/guest/form-26-faqs
- Income Tax Department, FAQs and Guidance Notes on Forms as per Income Tax Rules, 2026, read 27 Sep 2026, https://www.incometaxindia.gov.in/faqs-and-guidance-notes-on-forms-as-per-income-tax-rules-2026
- CBDT, Income Tax Rules, 2026, G.S.R. 198(E), 20 Mar 2026, https://www.incometaxindia.gov.in/documents/d/guest/en-notified-it-rules-2026-20-03-2026-pdf
- Income Tax Department, Income Tax Act, 2025 as amended by the Finance Act, 2026 (sections 3 and 515), read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/d/guest/income_tax_act_2025_as_amended_by_fa_act_2026-pdf
- Income Tax Department, Section 428 of the Income Tax Act, 2025 (Fee for default in furnishing return, audited accounts and reports), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-428-6
- Income Tax Department, Section 263 of the Income Tax Act, 2025 (Return of income), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-263-72
- Income Tax Department, Section 536 of the Income Tax Act, 2025 (Repeal and savings), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-536-1
- Income Tax Department, Section 60 of the Income Tax Act, 2025 (Head office expenditure of non residents), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-60-133
- Income Tax Department, Section 446 of the Income Tax Act, 2025, original and substituted text, read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-446-5 and https://www.incometaxindia.gov.in/w/section-446-6
- CBDT, FAQs on Interplay and Transition to the Income Tax Act, 2025 (Q3.25, Q4.31 to Q4.34, Q5.16), March 2026, https://www.incometaxindia.gov.in/documents/81799/11848482/FAQs-on-Interplay-and-Transition.pdf/05f80c1a-073c-a5d7-fb6f-55509242be53?t=1774082865717
- CBDT, Updated FAQs on Interplay and Transitions (Q3.25, Q4.31 to Q4.34, Q4.39), read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/81799/11848482/Updated-FQAs-on-Interplay&Transitions.pdf/e10ad2b6-9495-de90-58d3-20606d8954ae?t=1775128640970
- Income Tax Department, FAQs on Budget 2026, section XV (conversion of penalty to fee), read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/20117/15766092/FAQs-Budget-2026.pdf/ff3d0e10-88a0-b11f-3c27-b58375974227
- Ministry of Finance, Notes on Clauses to the Finance Bill, 2026 (clause 83 on section 428), read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/81799/11848482/Notes-on-clauses-2026.pdf/ecfb4f92-f679-f49b-4405-8e6eabe534e2
- Government of India, Finance Act, 2026, read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/d/guest/finance-act-2026-pdf-1
- Income Tax Department, Section 44AB of the Income Tax Act, 1961, read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-44ab-38
- Income Tax Department, Section 271B of the Income Tax Act, 1961, read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-271b-39
- Income Tax Department, Penalties under the income tax law (sections 271B, 271BA, 273B), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/penalties-under-the-income-tax-law
- Income Tax Department, FAQ on the due date for getting accounts audited, read 27 Sep 2026, https://www.incometaxindia.gov.in/w/what-is-the-due-date-by-which-a-taxpayer-should-get-his-accounts-audited-
- Income Tax Department, FAQ on the penalty for not getting accounts audited, read 27 Sep 2026, https://www.incometaxindia.gov.in/w/what-is-the-penalty-for-not-getting-the-accounts-audited-as-required-by-section-44ab-
- Income Tax Department, Form 3CD with amendments to the Income Tax (Eighth Amendment) Rules, 2025, read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/d/guest/103120000000007767-pdf-3
- Income Tax Department, Guidance note on Form 48, read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-48
- Income Tax Department, Guidance note on Form 145 (Parts A to D), read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/d/guest/fn-145
- Income Tax Department, Rule 6G of the Income Tax Rules, 1962 (rule 6G(3), revised audit report), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/rule-6g
- Income Tax Department, Rule 46 of the Income Tax Rules, 2026 (maintenance of books of account; rule 46(8), backup in India), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/rule-46-5
- Income Tax Department, Section 62 of the Income Tax Act, 2025 (Maintenance of books of account), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-62-134
- Income Tax Department, Section 35 of the Income Tax Act, 2025 (Amounts not deductible in certain circumstances), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-35-181
- Income Tax Department, Section 37 of the Income Tax Act, 2025 (Certain deductions allowed on actual payment basis only), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-37-176
- Income Tax Department, Section 177 of the Income Tax Act, 2025 (Limitation on interest deduction in certain cases), read 27 Sep 2026, https://www.incometaxindia.gov.in/w/section-177-80
- Income Tax Department, Income Tax Bill, 2025 navigator of old and new sections (sections 185 to 188), read 27 Sep 2026, https://www.incometaxindia.gov.in/documents/20117/43138/new-income-tax-bill-2025-navigator.pdf/8df3eecc-8a0d-e28d-85c7-4db6310a52dd
- Income Tax Department, income tax portal news and updates, read 1 Oct 2026, https://www.incometax.gov.in/iec/foportal/latest-news
- CBDT, Circular No. 07/2026, extension of timelines for audit reports and returns for AY 2026-27, 28 Sep 2026, https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-09/Circular-7-2026.pdf

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