"Do I need a tax audit?" sounds like a yes-or-no question. It is actually three questions: what is your turnover, how much of your money moves in cash, and have you ever opted into a presumptive scheme.

The cash test that changes the threshold

For a business, the basic turnover threshold for tax audit is raised substantially where both of these hold true:

  • Aggregate cash receipts during the year do not exceed 5% of total receipts, and

  • Aggregate cash payments during the year do not exceed 5% of total payments.

Both limbs, not either
Businesses often check receipts and stop. Fail the payments limb — a run of cash wages or cash vendor settlements — and the higher threshold is lost entirely for that year.

Professionals are treated differently

Gross receipts from a profession are tested against their own threshold, and the 5% cash relaxation applicable to business turnover does not apply in the same way. A consultant, doctor or architect should test their position against the professional limit, not the business one.

How presumptive taxation interacts

Situation

Tax audit consequence

Within presumptive limits and declaring the presumptive rate or higher

No tax audit required on that ground

Declaring lower than the presumptive rate, with income above the basic exemption

Audit required, and books must be maintained

Opted out of 44AD after opting in

Locked out of 44AD for five years; audit can be triggered in that period

Presumptive taxation and the audit trigger

Section 44AD's five-year lock
If you declare presumptive income under 44AD and then opt out in a later year, you cannot return to 44AD for the next five assessment years — and in those years the audit and bookkeeping requirements can apply.

What the auditor will ask for

  1. Trial balance, general ledger and bank statements for the full year.

  2. Fixed asset register with additions, disposals and depreciation working.

  3. Stock records with the valuation basis and physical verification evidence.

  4. TDS deduction and deposit summary, reconciled to Form 26AS.

  5. GST returns reconciled to the revenue in the books.

  6. Related party transaction details and loan confirmations.

Form 3CD is read closely
The clauses on disallowances, related party payments, loans accepted or repaid in cash, and TDS defaults are the ones that most often become assessment questions. Get them right the first time rather than explaining them later.

Not sure whether the audit applies to you?
Send us your turnover and cash mix — we will confirm your position in writing.
Check my position