Tax Audit Limits and Time Limits in New Income ax Act 2025

Tax Audit and Time Limits for completing a tax audit in New Income tax Act 2025

Tax Audit in New Income Tax Act 2025 : The Income-tax Bill, 2025 outlines specific time limits for completing a tax audit, which are connected to the financial year. The concept of a “tax year” is introduced in the new bill, and is tied to the financial year.

Here are the relevant details regarding tax audit time limits as specified in the Income-tax Bill, 2025, presented in a table format for clarity:

As per the Income Tax Bill 2025, the following persons are required to have a tax audit under Section 63:

Persons Required to Do Tax Audit in New Income Tax Act 2025

1. Businesses and Professions Based on Turnover/Gross Receipts

Any person carrying on a business or profession fulfilling the following conditions must get their accounts audited:

2. Presumptive Taxation Cases (Lower Profit Declaration)

A tax audit is also required if an assessee:

• Declares profits lower than those deemed under presumptive taxation schemes as per Section 58(2) or Section 61(2) (except for cases in Section 61(2) [Table: Sl. No. 6]).

Tax Audit Requirements in case of Presumtive Scheme

Table: Special Provisions under Clause 58(2)

3. Exemptions from Tax Audit

A tax audit is NOT required if:

• The profits and gains of a business or profession are declared under Section 58(2).
• The assessee falls under Section 61(2) [Table: Sl. No. 6], with specific income types exempted from tax audit.

4. Additional Compliance for Audit

• The tax audit report must be furnished one month before the due date for filing the return of income under Section 263(1).
• If a person is already required to get their accounts audited under any other law, the tax audit requirement will be considered fulfilled if:
  • The audit is conducted before the specified date; and
  • The audit report is submitted along with the income tax return

Meaning of Turnover for Tax Audit under the Income Tax Bill 2025

The term “turnover” for tax audit purposes is not explicitly defined in the Income Tax Bill 2025, but it clause 63 of the bill refers total sales, turnover or gross receipts from business or profession during the tax year .

Tax Year Concept in New Income Tax Act 2025 Explained

When Tax Audit Should be Conducted

Key Points:

• The “specified date” for the audit report is defined as one month prior to the due date for furnishing the return of income under section 263(1). The due date for furnishing the return of income depends on the category of assessee.
• Section 63 specifies that a tax audit is required if a person carrying on business or profession exceeds certain thresholds in terms of turnover/receipts. It is also required if the accounts are required to be audited under any other law.
• Clause 263 of the Income-tax Bill, 2025 outlines the obligation of persons to file a return of income.
• For a company, the due date for filing the return of income is the 31st of October of the financial year succeeding the relevant tax year.
• For a person, other than a company, whose accounts are required to be audited, the due date for filing the return of income is also the 31st of October of the financial year succeeding the relevant tax year.
• The Income Tax Bill 2025 defines a tax year as a period of twelve months within the financial year starting on April 1. For a new business or a new source of income, it will start from the date of set up or the source and end with the financial year.
• The requirement for a tax audit is based on the person’s income and business activities during the tax year. However, the deadlines are defined by their connection to the financial year.
• The audit report is to be furnished by the assessee to the Assessing Officer within such period as specified by the Assessing Officer. The Assessing Officer may extend the period for any good and sufficient reason.

It is important to note that while the tax year is the unit period of taxation, the financial year remains relevant for setting the timelines for compliance and other procedural matters, including those related to tax audits.

Due Dates for Filing Income Tax Return (ITR) as per Income Tax Bill 2025

Additional Provisions

1. Late Filing of Return: If a person fails to file their ITR within the due date, they may still file a belated return within 9 months from the end of the tax year or before the completion of assessment, whichever is earlier.
2. Revised Return: If a person finds errors in a filed return, they may revise it within 9 months from the end of the tax year or before the completion of assessment, whichever is earlier.
3. Updated Return: A person may file an updated return within 48 months from the end of the financial year succeeding the tax year in certain cases.

These dates apply as per Section 263 of the Income Tax Bill 2025​.

Due Dates for Tax Audit and ITR Filing Income Tax Bill 2025​.

Penalty for Failure to Get Accounts Audited (Clause 446)

If any person fails to get their accounts audited for any tax year or fails to furnish the audit report as required under Section 63, the Assessing Officer may impose a penalty, which shall be the lesser of:

1. 0.5% of the total sales, turnover, or gross receipts in business, or the gross receipts in profession for such tax year; or
2. ₹1,50,000 (One Lakh Fifty Thousand Rupees).

This penalty applies to all taxpayers who are mandated to conduct a tax audit under Section 63 but fail to do so​

Here is a comparison between Clause 446 of the Income Tax Bill 2025 and Section 271B of the Income Tax Act, 1961 (as amended by FA 2024):

Possible Relief from Tax Audit Penalty  in New Income Tax Act 2025

 Clause 470 of the Income Tax Bill 2025 provides that a penalty shall not be imposed if there is a reasonable cause for non-compliance.

Thus, if a taxpayer can prove reasonable cause, the tax authorities may decide not to impose the penalty for tax audit non-compliance.

Comparison of Tax Audit Penalty Provisions

Key Observations

• No Change in Penalty Amount: The maximum penalty remains ₹1,50,000, and the rate remains 0.5% of turnover or gross receipts.
• Structural Change: The provisions have been renumbered (from Section 271B in the Income Tax Act, 1961 to Clause 446 in the Income Tax Bill, 2025).
• Applicability and Sections Changed: The new law applies under Section 63, whereas the older law applied under Section 44AB.

Conclusion

The substance of the penalty provision remains unchanged in the new law, but it has been restructured and renumbered to align with the revised framework of the Income Tax Bill 2025.

Who Can Conduct a Tax Audit Under the Income Tax Bill 2025?

As per Section 515(3)(b) of the Income Tax Bill 2025, a tax audit must be conducted by an “Accountant.”

Definition of Accountant (Section 515(3)(b))

An “Accountant” means:

1. A Chartered Accountant (CA) as defined under Section 2(1)(b) of the Chartered Accountants Act, 1949, who holds a valid Certificate of Practice (COP) under Section 6(1) of the Chartered Accountants Act, 1949.
2. Exclusions: The following persons cannot be considered as an “Accountant” for tax audit purposes:
   • For a Company: A person not eligible for appointment as an auditor under Section 141(3) of the Companies Act, 2013.
   • For Other Assessees:
     • The assessee himself (including partners or members of an HUF, AOP, or firm).
     • A trustee or office bearer of a trust or institution.
     • Any relative of the assessee.
     • An officer or employee of the assessee.
     • A person who has a financial interest (holding securities, being indebted, or providing guarantees) beyond prescribed limits.
     • A person who has a business relationship with the assessee.
     • A person convicted of fraud or penalized under tax laws.

Conclusion

Only a practicing Chartered Accountant (CA) with a valid Certificate of Practice (COP) can conduct a tax audit under Clause 63, subject to the restrictions mentioned above.

Comparison of the Definition of “Accountant” in the Income Tax Act, 1961 (Section 288) and the Income Tax Bill 2025 (Section 515(3)(b))

Key Differences & Observations

1. Definition of “Accountant” Remains the Same
   • Both laws define an accountant as a Chartered Accountant (CA) holding a valid Certificate of Practice.
2. Exclusions Remain the Same
   • The same restrictions apply to persons who cannot act as an accountant, including partners, employees, relatives, and persons with financial interests in the assessee.

Conclusion

• Practically, Chartered Accountants (CAs) remain the only professionals authorized to conduct tax audits under both the existing law and the new law.

Key Changes in Tax Audit Provisions: Income Tax Bill 2025 vs. Income Tax Act 1961

The Income Tax Bill 2025 (Clause 63) introduces certain modifications in tax audit provisions compared to Section 44AB of the Income Tax Act, 1961. Below is a comparative analysis:

1. Turnover Limit for Tax Audit

✅ No major change in turnover limits, but the applicable section numbers have been renumbered.

2. Due Date for Filing Tax Audit Report

✅ No change in the timeline for submission of the audit report.

3. Compliance with Other Laws

✅ No change in the rule allowing tax audits conducted under other laws to fulfill tax audit requirements.

4. Exemptions from Tax Audit

✅ Renumbering of sections, but no major change in exemptions.

5. Who Can Conduct a Tax Audit?

✅ No change in eligibility rules for tax auditors.

6. Penalty for Non-Compliance with Tax Audit

✅ No change in the penalty structure, but the waiver provision is now under Clause 470 instead of Section 273B.

7. Additional Changes

No major changes except renumbering of sections.

Conclusion: What Has Changed?

1. No Major Structural Changes
   • Tax audit applicability, turnover limits, penalties, and exemptions remain the same.
   • The provisions have only been renumbered, making it easier to follow under the new law.
2. Renumbering of Sections
   • Section 44AB → Clause 63
   • Section 271B (Penalty for non-compliance) → Clause 446
   • Section 273B (Penalty waiver) → Clause 470
3. Reporting and Compliance Requirements Remain the Same
   • The due date for tax audit report filing remains one month before the ITR due date.
   • Tax audits under other laws (e.g., Companies Act) will still be accepted.
4. Penalty Waiver Provision Shifted to Clause 470
   • Previously under Section 273B, now under Clause 470.

Final Verdict

✅ Minimal changes in tax audit provisions in the new Income Tax Bill 2025—mostly renumbering and simplifications.