The Income Tax Act 2025 introduces a significant shift where businesses and professionals declaring profits below presumptive rates may face mandatory tax audit compliance.
Khush Dharmeshkumar Trivedi | May 11, 2026 |
Income Tax Act 2025: Low Profit Declaration Now Requires Tax Audit
BACKGROUND
Under the Income Tax Act 1961, while calculating the income from profits & gains from business & profession. TAX Audit was not applicable if an Assessee declares a profit less than 6%/8% under normal Business without opting for presumptive taxation under Section 44AD, provided that T/O is within the ambit of 44AB and the Assessee maintained Books.
But the Question is whether this can be done under the new Income Tax Act 2025. Let’s decode it:
SECTION 63: TAX AUDIT (IT ACT-2025)
(Similar to 44AB)
Under section 63 of the Income Tax Act 2025, a tax audit will be triggered under two cases, as illustrated below:
(a) Business T/O exceeds Rs 1 crore in the tax year sub to (b)
(b) Business T/O exceeds Rs. 10 crores (provided cash transactions do not exceed 5% of total transactions).
(c) Profession Gross receipts exceed 50 lakhs in the tax year
Such Section won’t applicable where the computation of profits & gains from Business & professions is declared by the Assessee as per Section 58(2) or 61(2) (i.e. Presumptive Basis)
Section 58: Special provision for computing profits and gains of a business or profession on a presumptive basis in the case of certain residents.
(Similar to section 44AD/ADA/AE under IT ACT 1961)
| Sl. No. | Category of Business / Profession | Turnover / Gross Receipts Limit | Assessee | How Profit is Computed (Manner of Computation) |
| 1 | Any Business (General)[Sl. No. 1] | Option A: Up to ₹2 croreOption B: Up to ₹3 crore (only if cash receipts ≤ 5%) | Eligible assessee. | Choose HIGHER of: ▸ A) Aggregate of: • 8% of the remaining turnover ▸ B) Actual profit earned |
| 2 | Goods Carriage Business (Plying / Hiring/ Leasing)[Sl. No. 2] | No turnover limit specified for this category | An assessee, who owns not more than ten goods carriages at any time during the tax year | Choose HIGHER of: ▸ A) Fixed rate per vehicle: HEAVY GOODS VEHICLE OTHER GOODS VEHICLES ▸ B) Actual profit earned |
| 3 | Specified Profession(e.g., Doctors, Lawyers, CAs, Engineers, Architects, etc.) [Sl. No. 3 | Option A: Up to ₹50 lakhOption B: Up to ₹75 lakh (only if cash receipts ≤ 5%) | Specified assessee. | Choose HIGHER of: ▸ A) 50% of gross receipts ▸ B) Actual profit earned |
So, when the Assessee opted to compute the profit & gains as per section 58, then the tax audit would not be triggered, provided that the declared profits are higher than the deemed profits.
However, the twist arises due to Section 58(3): a person not opting for presumptive & declaring normal Business might get the applicability of Tax audit, as it says
Any Assessee mentioned above who claims that:
(a) The profits or gains actually earned from the specified business or profession are lower than the profits or gains computed in the manner mentioned AND
(b) Total income exceeds Basic Exemption Limit
Shall require:
Hence, under the new Income Tax Act 2025, i.e., from the tax year onwards, one should be very careful before choosing the normal business or presumptive business while considering the possibilities of Tax audit applicability.
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