Section 63 of the Income Tax Act, 2025 mandates tax audit for specified categories of taxpayers. Form No. 26 is the prescribed tax audit report, replacing the earlier Forms 3CA, 3CB, and 3CD. Understanding the structure and content of Form 26 is essential for taxpayers and auditors.
Overview of Section 63
Who Must Get Audited
Form No. 26 is required to be furnished by a person carrying on business or profession whose accounts are required to be audited under Section 63. This includes:
Business Cases: Where total sales, turnover or gross receipts exceed Rs. 1 crore (threshold increases to Rs. 10 crore where cash receipts and cash payments each do not exceed 5% of total receipts and payments respectively)
Profession Cases: Where gross receipts exceed Rs. 50 lakh
Presumptive Taxation Cases: Under Sections 58(2) or 61(2) where income declared is lower than deemed income
Opt-Out Cases: When a taxpayer opts out of a presumptive scheme in any of the five consecutive years and their income exceeds the basic exemption limit
Due Date
Form No. 26 is required to be furnished annually. The due date is the same as the due date for furnishing the return of income.
Form 26: Structure
Form 26 is a structured, technology-driven reporting framework with Parts A to D. It combines factual disclosures and audit opinions.
Part A: Audit Report
Purpose
Part A contains the audit report proper, where the auditor expresses an opinion on whether the Profit & Loss Account / Income & Expenditure Account and Balance Sheet give a true and fair view.
Content
- Auditor's opinion
- Qualifications, if any
- Observations, if any
Applicability
Part A applies to:
- Cases where audit is conducted solely under Section 63
- Cases where audit is conducted under another law but the accounts are required to be audited under Section 63
Part B: Statement of Particulars
Purpose
Part B contains the statement of particulars required to be furnished under Section 63.
Content
- Financial information
- Tax adjustments
- Compliance certifications
Applicability
Part B applies to all cases where audit is required under Section 63.
Part C: Additional Information
Purpose
Part C contains additional information required for tax audit purposes.
Content
- Information on accounting software used
- Details of cloud storage and server location
- Digital infrastructure information
Key Features
Technology Reporting: Mandatory reporting of digital infrastructure such as accounting software, cloud storage, and server location
Transparency: Enhances transparency and curbs tax evasion
Alignment: Aligns closely with ITR data to reduce mismatches
Part D: Certification
Purpose
Part D contains the certification by the auditor.
Content
- Certification of compliance
- Certification of accuracy
- Any other certifications required
Key Features of Form 26
Yes/No-Based Triggers
The form introduces Yes/No-based triggers and schedule-based reporting, ensuring proportionate compliance and reducing unnecessary disclosures.
Technology Integration
The form requires reporting of digital infrastructure such as accounting software, cloud storage, and server location, enhancing transparency and curbing tax evasion.
Alignment with ITR
The form aligns closely with ITR data to reduce mismatches, litigation, and discretionary adjustments.
Standardised Auditor Responsibilities
Auditor responsibilities are standardised with classification of observations and disclosure of their financial impact.
Consequences of Non-Compliance
Penalty
Failure to furnish Form 26 may attract penalty under the Act.
Disallowance
In the absence of a tax audit report, deductions may be disallowed.
Best Judgment Assessment
In the absence of a tax audit report, the Assessing Officer may make a best judgment assessment.
Expert Legal Guidance
Understanding the tax audit report requirements under Section 63 is essential for taxpayers and auditors. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping taxpayers prepare Form 26 audit reports and ensure compliance with all requirements.