Does Your Startup Need a Tax Audit? Section 44AB Thresholds Explained
A tax audit under Section 44AB is required once turnover crosses ₹1 crore (₹10 crore if cash transactions are minimal) — separate from your statutory audit. Here's who needs it, the thresholds, and the deadline.
A tax audit under Section 44AB is required once your business turnover crosses ₹1 crore — raised to ₹10 crore if at least 95% of your receipts and payments are non-cash (digital) — or ₹50 lakh of gross receipts for professionals. It's a separate requirement from the statutory (company) audit, and missing it attracts a penalty. Here's who needs a tax audit, the exact thresholds, and when it's due.
Tax audit vs statutory audit — not the same thing
Founders confuse these. Every company must have a statutory audit under the Companies Act (regardless of turnover). A tax audit under Section 44AB of the Income Tax Act is a separate requirement triggered by turnover thresholds — a review of your accounts for income-tax purposes, reported in Form 3CA/3CB and 3CD. A company can need both; an LLP or proprietorship may need only the tax audit once it crosses the threshold.
The Section 44AB thresholds
- Business: turnover exceeds ₹1 crore — but the limit is ₹10 crore if cash receipts and cash payments are each ≤ 5% of the total (i.e. you're substantially digital). Most modern startups qualify for the ₹10 crore limit.
- Profession: gross receipts exceed ₹50 lakh.
- Presumptive scheme: a tax audit is also triggered if you're under a presumptive scheme (44AD/44ADA) but declare lower profits than the presumptive rate and your income exceeds the basic exemption.
The ₹1 crore-vs-₹10 crore distinction is the one to get right: a digital-first startup between ₹1 and ₹10 crore turnover often does not need a tax audit, provided cash is under 5% both ways.
The deadline
The tax-audit report must generally be filed by 30 September of the assessment year (ahead of the ITR deadline for audited taxpayers). Late or non-filing attracts a penalty of 0.5% of turnover (capped), so it's not something to slip.
Why get the threshold right
Two failure modes: doing an unnecessary tax audit (cost and time you didn't owe), or missing a required one (penalty + a diligence flag). Since it hinges on turnover and your cash ratio, it's worth confirming your position each year with your CA rather than assuming.
Track the audit trigger with your turnover
Whether a tax audit applies depends on your turnover band and cash ratio — a threshold that changes as you grow. ComplianceStack flags tax-audit applicability from your profile and tracks the 30 September report as a dated task with evidence. Get your free compliance health check.
FAQs
- When is a tax audit required under Section 44AB?
- When business turnover exceeds ₹1 crore (₹10 crore if cash receipts and payments are each ≤5% of totals), or professional gross receipts exceed ₹50 lakh — plus certain presumptive-scheme cases.
- Is a tax audit the same as a statutory audit?
- No. A statutory audit under the Companies Act applies to every company regardless of turnover; a tax audit under Section 44AB is a separate income-tax requirement triggered by turnover thresholds.
- When is the tax-audit report due?
- Generally by 30 September of the assessment year, before the ITR deadline for audited taxpayers.
- Does a digital startup under ₹10 crore need a tax audit?
- Often not — if turnover is between ₹1 crore and ₹10 crore and both cash receipts and payments are ≤5% of totals, the ₹10 crore limit applies. Confirm your cash ratio with your CA.
This article is general information, not tax, legal or accounting advice. Statutory timelines and thresholds change by notification — confirm applicability and interpretation with your CA, CS, or lawyer before acting.
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