Why tax audits matter: This year, MSMEs, traders, influencers under the lens

The Central Board of Direct Taxes (CBDT) has extended the tax audit report filing deadline for Assessment Year 2025–26 from September 30 to October 31, 2025. The extension covers assessees under clause (a) of Explanation 2 to sub-section (1) of section 139 of the Income-tax Act, 1961, for the Previous Year 2024–25. This decision comes after appeals from chartered accountants and professional bodies, citing delays caused by floods and other natural disasters that affected timely completion of audits. Some cases had reached High Courts, prompting judicial review, leading to the CBDT granting additional time for compliance.

Tax audit season is often marked by tight deadlines and growing compliance requirements. Chartered Accountants (CAs) and industry associations have repeatedly highlighted the challenges faced by businesses in compiling data, adhering to new reporting norms, and reconciling financial disclosures. This year, several new reporting requirements have made the audit process more complex.

A tax audit is essentially a financial check-up that reviews a business or professional’s accounts to ensure income, expenses, and deductions are properly reported and taxes are calculated in line with the Income Tax Act. It is mandatory for businesses with turnover above Rs 1 crore, though the limit extends to Rs 10 crore if cash transactions are below 5% of total dealings. 

CA Nitin Kaushik, in a widely shared post on X, summed up the broader purpose of audits: “Audits aren’t just boring paperwork—they show how businesses report income & expenses. This year, MSMEs, trading, and professions like social media influencers get special attention.”

Key changes in this year’s tax audit framework

1. New Business Codes Certain categories such as speculative trading, futures & options (F&O), share trading, and social media influencers now have distinct business codes. For example, a small trader earning ₹10 lakh from F&O trading must report under “F&O trading” instead of the earlier generic “other business” code. This ensures more accurate classification of income sources.

2. Presumptive Taxation A new provision, Section 44BBC, has been added for cruise ship businesses. Even if profits are declared on a presumptive basis, mandatory disclosure is now required. As Kaushik explained, “Your guessed income = no longer enough.”

3. Disallowed Expenses Expenses incurred in settling legal disputes under certain government-notified laws are not deductible. For instance, if a business spends ₹2 lakh to settle a tax notice, that amount cannot be claimed to reduce taxable income.

4. MSME Payments Payments to micro and small enterprises must be made within 45 days (if a written agreement exists) or within 15 days (without an agreement). Delays attract interest at three times the RBI bank rate, which must be reported in the audit. For example, if a business delays a ₹5 lakh payment by 20 days, the additional interest liability has to be disclosed. Medium enterprises and capital asset transactions are excluded from this rule.

5. Mode of Payment (Clause 31) Auditors must now track the exact payment mode—whether cheque, draft, ECS, card, net banking, UPI, IMPS, RTGS, or even digital assets like NFTs. For example, a ₹1 lakh UPI transfer to a supplier has to be reported with mode details, ensuring there are no hidden cash transactions.

6. Buyback of Shares (Clause 36B) Companies conducting share buybacks must report both the buyback amount and the cost of acquisition of shares. For instance, if 10,000 shares are bought back at ₹100 each, both the payout and acquisition cost must be recorded.

Why this matters

The new disclosures highlight the government’s push for greater transparency and stricter compliance. With focus areas ranging from MSME payments to digital payment modes and sector-specific codes, businesses face added complexity in meeting reporting standards.

For professionals, this means more rigorous checks and a heavier workload. For businesses, timely compliance reduces the risk of errors, penalties, and scrutiny. As Kaushik stressed, “Audit isn’t just form-filling—it’s clarity, transparency, and protecting your business.”

With courts already stepping in and CBDT’s notification expected shortly, taxpayers are waiting to see if the extension will be pan-India, giving much-needed relief to auditors and businesses alike.

Tax audit deadline

Missing the October 31 deadline can attract penalties under Section 271B — 0.5% of turnover or receipts, capped at Rs 1,50,000 — unless the delay is backed by a valid reason. Timely compliance not only helps avoid penalties but also ensures smoother income tax return filing, making it critical for taxpayers under the audit bracket to keep their accounts in order and file without delay.

Tax professionals have been grappling with persistent challenges on the Income Tax e-filing portal, including frequent login failures, sluggish performance, and limited access to key documents such as the Annual Information Statement (AIS). The situation was further compounded by delays in releasing utilities for ITR-5, ITR-6, and ITR-7, which disrupted timely filings. Adding to the pressure, the expanded reporting requirements in the revised Form 3CD have substantially increased the compliance burden for auditors, making this filing season particularly demanding.