Who really needs a tax audit? CA demystifies audit rules, clears confusion on ITR 3 & 4

Confusion over tax audits has been a recurring challenge for Indian taxpayers, particularly those filing under ITR-3 and ITR-4. In an explanatory post on X (formerly Twitter), CA Nitin Kaushik broke down the rules around turnover thresholds, due dates, and audit requirements, making compliance clearer for both professionals and business owners. 

Kaushik began by clarifying the often-misunderstood distinction between Financial Year (FY) and Assessment Year (AY). “FY 2024-25 runs from April 1, 2024, to March 31, 2025, while AY 2025-26 is when you actually file your ITR for that year,” he noted. 

On filing deadlines, Kaushik explained: 

• Without Audit → July 31 (extended this year to September 16) 
• With Audit → September 30, with ITR due by October 31, extendable up to December 31 with late fees. 

Who needs a tax audit 

Kaushik emphasised that tax audits apply only to business and professional income (PGBP), not to income from salary, rent, capital gains, or interest. Key thresholds include: 

Businesses: 

• Turnover above ₹1 crore → Audit mandatory. 
• Under presumptive taxation (Sec 44AD), up to ₹2 crore turnover is audit-free if profits of 6–8% are declared. 
• If 95%+ transactions are digital, the no-audit limit extends to ₹3 crore, and for fully digital businesses, up to ₹10 crore. 

Professionals (Sec 44ADA): 

• Doctors, lawyers, CAs, engineers, and other professionals face a ₹50 lakh threshold. 
• With 95%+ digital transactions, the limit rises to ₹75 lakh. 

Why audit matters 

“An audit ensures that a CA certifies the books of accounts, profit & loss, and balance sheet, making sure income and expenses are accurately reported,” Kaushik explained. Without a mandatory audit, he warned, an ITR could be rendered invalid. 

Summing up, Kaushik reminded taxpayers that while exemptions exist, maintaining proper books is crucial. “Don’t confuse tax saving with tax compliance. Compliance comes first, savings later,” he advised.