Section 63 – Tax Audit
Under Income Tax Act 2025
Complete Structured Guide — Master Applicability, Presumptive Taxation (Sec 58), Deemed Income, 5-Year Lock-in Rule, Form 26 (Rule 47), Technology Control & Anti-Evasion Framework
Master Applicability Flow
Who is required to get a Tax Audit under Section 63? The threshold depends on whether you are in Business or Profession — with a higher ₹10 Crore limit available for digital-mode businesses.
🔀 Master Applicability Flow FLOWCHART 1
Cash Receipts ≤ 5%
AND
Cash Payments ≤ 5%?
Presumptive Taxation Flow (Section 58)
A person eligible for the presumptive scheme under Section 58 can avoid audit — but only if the income declared is at least equal to the deemed income. Below the deemed income threshold, audit becomes mandatory under Section 63.
🔀 Presumptive Taxation — Audit Trigger Flow FLOWCHART 2
≤ ₹2 Crore
(₹3 Cr if cash ≤ 5%)
≤ ₹50 Lakh
(₹75 L if cash ≤ 5%)
Point 3 — Deemed Income Structure (Important)
| Category | Deemed Income Rate / Amount |
|---|---|
| Business — Digital Receipts | 6% of turnover / gross receipts |
| Business — Cash Receipts | 8% of turnover / gross receipts |
| Profession | 50% of gross receipts |
| Goods Carriage | ₹7,500 per vehicle per month OR ₹1,000 per ton per month |
Presumptive Non-Compliance — 5-Year Lock-in Rule
Exiting the presumptive scheme triggers a 5-year lock-in period. If income during lock-in exceeds the basic exemption limit, audit under Section 63 becomes mandatory.
🔀 Presumptive Non-Compliance — Lock-in Rule Flow FLOWCHART 4
Point 5 — Important Presumptive Conditions
| Condition | Rule / Detail |
|---|---|
| Eligible Assessee | Individual / HUF / Firm Not LLP |
| Not Allowed | Commission agents, brokers, and agency businesses are excluded from the presumptive scheme |
| No Further Deductions | No additional deductions allowed once presumptive income is adopted |
| Depreciation | Deemed to be already allowed — cannot be claimed separately |
| Non-Account Payee Cheque | Treated as cash — counts towards cash receipt/payment percentage |
Point 6 — Exception: Goods Carriage Business
Section 62 & Section 63 are NOT applicable to Goods Carriage businesses. The turnover from goods carriage is excluded from the threshold calculation for audit applicability. This is a critical exception — remember it for exams and practice.
Specified Date Flow
The audit must be completed and Form 26 must be filed on or before the Specified Date — defined as 1 month before the ITR due date under Section 263.
🔀 Specified Date Calculation Flow FLOWCHART 7
The Rule
Specified Date = 1 month before the ITR due date under Section 263. Audit report must be filed by this date.
Practical Example
If ITR due date = 31st October, then Audit Specified Date = 30th September
Consequence of Delay
Missing the specified date may attract penalties. The audit and filing must both be completed before this deadline.
Form 26 — Structure & Audit Type
Rule 47 prescribes Form 26 as the tax audit report under Section 63. It has four parts — Part A & B apply to all; Part C or D depends on whether the accounts are audited under any other law.
Form 26 — Four Parts at a Glance
| Part | Applicability | Purpose |
|---|---|---|
| Part A | All Cases | Assessee basic details — name, PAN, address, nature of business |
| Part B | All Cases | Statement of particulars — detailed financial disclosure (11 areas) |
| Part C | Accounts audited under other law (e.g. Companies Act) | Reliance on statutory audit — CA certifies based on existing audit |
| Part D | No other audit applicable | Independent tax audit conducted directly by the CA |
🔀 Form 26 — Structure Flow FLOWCHART 8
Assessee Details
All Cases
Statement of Particulars
All Cases
Audit Under Other Law
Rely on Statutory Audit
No Other Audit
Independent Tax Audit
🔀 Audit Type Selection — Part C vs Part D FLOWCHART 11
(Companies Act, Co-op Act, etc.)
Rely on Statutory Audit
Independent Tax Audit
Part B Core Structure, Schedule Trigger & Auditor Reporting
Part B has 11 coverage areas — every clause is answered Yes/No. A “Yes” answer triggers a detailed schedule. The auditor must also classify the basis of reporting for each item.
Point 9 — Part B Core Structure (11 Areas)
| # | Area | Coverage & Details |
|---|---|---|
| 1 | General Info | Basic business details — nature, name, registration, category |
| 2 | Books & Accounting | Method of accounting, books maintained, accounting software used |
| 3 | Income | Gross receipts, total turnover, income computation |
| 4 | Expenses | Disallowances — personal expenses, capital items, excessive payments |
| 5 | Prior Period | Adjustments relating to earlier financial years |
| 6 | Depreciation | Losses, depreciation claims and deduction computation |
| 7 | International Tax | Foreign transactions — transfer pricing, foreign remittances |
| 8 | TDS / TCS | Tax Deducted / Collected at Source — reporting & compliance |
| 9 | GST | Indirect tax — turnover reconciliation with GST returns |
| 10 | Quantitative | Stock details — opening, closing, purchase & sales quantities |
| 11 | Other | Key disclosures — MAT credit, other mandatory items |
🔀 Schedule Trigger Flow FLOWCHART 10
Point 12 — Auditor Reporting Classification
| Type | Meaning |
|---|---|
| Test-Check Basis | Sample-based — auditor verifies selected transactions, not every entry |
| Management Representation | Auditor relies on statements/representations made by client management |
| Unable to Verify | Insufficient evidence — auditor cannot independently verify the item |
Mandatory Impact Reporting (All Cases)
Regardless of the audit basis used, the auditor must mandatorily report the financial impact on:
- Profit / Loss — effect on the net income figure
- Book Profit — effect on Minimum Alternate Tax (MAT) computation
Complete Process Flow & Document Requirements
From maintaining books of accounts to final acceptance by the assessee — every step in the tax audit process under Section 63, and the key documents required.
🔀 Complete Process Flow — Books to Filing FLOWCHART 13
Books of Account
Maintain complete and accurate books — base data for the entire audit
Audit by CA
Chartered Accountant conducts the tax audit and forms opinion
Form 26 Preparation
CA prepares the structured audit report in Form 26 as per Rule 47
UDIN Generation
Unique Document Identification Number generated for audit authenticity
Upload with DSC
CA uploads Form 26 on the income tax portal using Digital Signature Certificate
Assessee Acceptance
Assessee reviews, approves and formally accepts the uploaded report — filing complete
Point 14 — Document Requirements
| Document | Purpose |
|---|---|
| Books of Account | Base data — complete financial records for the relevant FY |
| Financial Statements | P&L Account and Balance Sheet |
| Audit Report | If applicable — statutory or earlier audit reports |
| GST / TDS Records | Compliance proof — returns, challans, reconciliation |
| Inventory Records | Quantitative data — opening/closing stock, movements |
TDS/TCS Reporting, Technology Control & Anti-Evasion System
New requirements introduced under IT Act 2025 — designed to ensure data authenticity, prevent evasion, and enable automated risk-based scrutiny.
Point 15 — TDS / TCS Reporting (New Requirement)
| Requirement | Detail |
|---|---|
| Total Transactions | Mandatory — All TDS/TCS transactions must be fully reported |
| Unreported Transactions | Mandatory — Transactions not previously reported must be specifically disclosed |
| Amount of Such Transactions | Mandatory — Exact quantification of unreported amounts is required |
Point 16 — Technology Control System
| Area | Requirement | Impact |
|---|---|---|
| Software | Mandatory disclosure of accounting software used | Data authenticity verification |
| Cloud Storage | Disclose IP address + country of cloud storage | Traceability of financial data |
| Backup Server | Backup server must be India-based | Data security & sovereignty |
| System Validation | System-based cross-matching with ITR, GST, TDS returns | Early mismatch detection |
Anti-Evasion Control System
ITR Matching & Final Structure
The complete end-to-end picture — how Form 26 feeds into the system for cross-matching, and the layered framework from law to outcome.
🔀 ITR Matching Flow FLOWCHART 18
🔀 Final Structure — Section 63 to Outcome FLOWCHART 19
Key Takeaway — Students & Professionals
Section 63 of IT Act 2025 is a major evolution. It integrates Section 58 (Presumptive Taxation) with clear deemed income thresholds (6%/8%/50%), introduces a strict 5-year lock-in rule on opting out, carves out a specific exception for Goods Carriage businesses, and moves the entire audit framework to a structured, system-driven, automated process via Form 26 — enabling real-time cross-matching with ITR, TDS and GST returns for risk-based scrutiny.
