Income-Tax Act, 2025 Replaces Tax Audit Forms with Section 63 and Consolidated Form 26

(INDIA) – India shifted tax audit reporting to Section 63 of the Income-tax Act, 2025 from April 1, 2026, replacing the long-used Form 3CA, Form 3CB and Form 3CD structure with a consolidated Form 26 for income earned in the new tax regime.

The change does not apply to every filing marked 2026-27. Income earned during FY 2025-26, covering April 1, 2025 to March 31, 2026, remains under the Income-tax Act, 1961 and continues to use the old audit framework under Section 44AB.

Taxpayers now face a split-year transition that turns on the income period, not the label alone. Under the new law, Tax Year 2026-27, covering April 1, 2026 to March 31, 2027, is the first period that uses Form 26.

That distinction sits at the center of the new compliance cycle. AY 2026-27 belongs to the old law because it relates to FY 2025-26, while Tax Year 2026-27 belongs to the new law because it covers income from April 1, 2026 onward.

For decades, tax audits were understood through Section 44AB and the familiar division between Form 3CA, Form 3CB and Form 3CD. The new framework keeps the underlying audit concept but merges those reporting functions into a single filing under Section 63 read with Rule 47 of the Income-tax Rules, 2026.

The department’s Form 26 FAQ states that Form 26 corresponds to the old forms and that Section 63 is the replacement for Section 44AB. In practice, the earlier forms have not disappeared as concepts; they have been folded into one document.

Form 26 has four parts. Part A covers particulars of the assessee, Part B carries the statement of particulars under Section 63, Part C applies where accounts are already audited under another law, and Part D applies where they are not.

Part C carries forward the role once served by Form 3CA. Part D serves the function once handled by Form 3CB, while Parts A and B broadly absorb the disclosure role associated with Form 3CD.

Businesses and professionals still need to test whether an audit applies under the familiar turnover and receipts thresholds. Under Section 63, a business must get its accounts audited if total sales, turnover or gross receipts exceed ₹1 crore in any tax year, while a profession must do so if gross receipts exceed ₹50 lakh.

The law also keeps the enhanced threshold for low-cash businesses, but with conditions. A business can use the ₹10 crore threshold only if cash receipts do not exceed 5% of total receipts and cash payments do not exceed 5% of total payments.

Both conditions must be met. If either cash test fails, the ordinary ₹1 crore threshold applies instead.

Section 63 also treats receipt or payment by a cheque or bank draft that is not account-payee as cash for this purpose. That means the turnover figure alone does not settle whether a business qualifies for the higher threshold.

Presumptive taxation cases remain within the audit net in specified situations. An audit applies where eligible taxpayers declare income lower than deemed profits under the relevant presumptive provisions, and it may also apply where a taxpayer opts out during the lock-in period and income exceeds the basic exemption limit.

Due dates under the new system follow the return filing schedule rather than a single universal audit deadline. The audit report under Section 63 must be furnished one month before the due date for filing the return under Section 263(1) of the Income-tax Act, 2025.

That produces two practical dates in the Form 26 FAQ. If the return filing due date is October 31, the Form 26 due date is September 30; if the return filing due date is November 30, the Form 26 due date is October 31.

The result is a narrower rule than many taxpayers assume. September 30 is not the due date in every case, and the old forms still govern FY 2025-26 / AY 2026-27.

Where accounts are already audited under another law, such as the Companies Act, Part C links that statutory audit to the income-tax audit process. The taxpayer can rely on the existing audit under that law, provided it is completed before the specified date and furnished with the accountant’s report in the prescribed form.

Where no other law requires an audit, Part D becomes the operative route. In that case, the accountant conducts the audit specifically for Section 63 and reports on the financial statements along with the tax particulars in Parts A and B.

The filing sequence under Form 26 adds another compliance step that can decide whether the process is complete. The assessee must first engage an accountant as defined under Section 515(3)(b) of the Income-tax Act, 2025.

The accountant then fills Form 26 on the e-filing portal with the membership number and Firm Registration Number, where applicable. After that, the accountant generates and quotes the UDIN, digitally signs the form with DSC, and uploads it.

The filing ends only after the assessee accepts the uploaded form electronically. If the auditor uploads the form and the assessee does not accept it, the filing may not be treated as completed.

The new form also uses schedule-based reporting tied to trigger questions. Schedules are required only when the corresponding clause is answered “Yes”, which places added weight on correct responses in the main form.

Those schedules can cover general information, accounting information, computation of receipts and income, computation of expenses, prior period items, losses, depreciation and deductions, international taxation, TDS/TCS, GST and indirect taxation, quantitative details and other parameters. A wrong “Yes” or “No” can affect whether disclosures are complete.

Electronic recordkeeping has also moved closer to the audit process. Where books of account or other documents are maintained electronically, they must remain accessible in India at all times, and a daily backup must be maintained on servers located in India.

Form 26 requires details including the IP address and country of location of the server on which accounting information is maintained, as well as the address of the India-located backup server. That requirement reaches startups, cloud-based accounting users, SaaS companies, Indian subsidiaries of foreign companies and NRIs with Indian business interests.

The form is designed to match more closely with the income-tax return. The guidance note states that fields in the tax audit report are validated against the taxpayer’s ITR, and discrepancies may be brought to the notice of the taxpayer for revision, with system-driven action where applicable, including adjustment under Section 270(1)(a).

That tighter alignment changes the role of the tax audit report. Turnover, income, disallowances, depreciation, TDS/TCS, GST figures and quantitative details now sit in a framework built to compare audit reporting directly with the return.

The consequences for delay or non-filing have also changed under the new law. Under the old Act, failure to get accounts audited or furnish the report generally attracted penalty under Section 271B, usually 0.5% of turnover or gross receipts subject to a cap of ₹1,50,000, subject to reasonable cause principles.

Under the Income-tax Act, 2025 as amended by the Finance Act, 2026, Section 428 now covers the fee for default in furnishing the return of income, audited accounts and reports. Where a person fails to get accounts audited for any tax year and furnish the report required under Section 63, the fee is ₹75,000 for delay up to one month and ₹1,50,000 thereafter.

That replaces any assumption that the old Section 271B wording simply carries over unchanged. The new Act places the default in a fee provision with fixed slabs.

NRIs are also within the scope where they carry on business or profession in India and meet the applicable conditions. Residence status alone does not decide audit liability if an NRI runs an Indian proprietorship, is a partner in an Indian firm, earns professional receipts taxable in India, or operates an Indian business through proper books.

The compliance burden under the new system can be heavier for those cases because of the focus on electronic books, server location, GST reconciliation, TDS/TCS reporting and international taxation schedules. Businesses using overseas cloud systems will need their records and backup arrangements to match the new reporting fields.

The transition year therefore turns on a basic check that many taxpayers can get wrong. AY 2026-27 still uses Form 3CA, Form 3CB and Form 3CD under the 1961 law for income earned before April 1, 2026, while income from April 1, 2026 onward falls under Section 63 and Form 26 in the Income-tax Act, 2025.

That leaves taxpayers with three immediate checks before filing season tightens: identify the correct regime by income period, test whether the threshold is ₹1 crore or ₹10 crore by examining cash receipts and cash payments, and ensure the assessee accepts the uploaded Form 26 on the portal after the accountant signs and files it.