Income-tax Act 2025: Mandatory Audit for Low-Margin Businesses Under Presumptive Scheme

1.  Old Provisions:

Under the existing presumptive taxation regime (Section 44AD of the Income-tax Act, 1961), an assessee declaring income at 6%/8% of turnover is exempt from maintaining books of account and from audit. Audit is required only if the assessee:

opts out of presumptive taxation during the 5-year period, or

crosses general turnover thresholds.

2.  New Act:

Sec 58 of the new Income Tax Act 2025, inserts a specific provision that mandates audit where:

The assessee declares profits from eligible business lower than 6% or 8% of turnover, as the case may be, irrespective of whether the assessee has ever opted for presumptive taxation in earlier years or not.

3.  Key implications

a.  Even if the assessee never opted for presumptive taxation in the past, the moment profit declared is below 6%/8%, audit becomes compulsory.

b.  This is a stand-alone audit trigger, independent of the 5-year lock-in concept that existed earlier.

c.  Businesses showing actual profit lower than the presumptive rate must get their accounts audited for Tax Year 2026–27 onwards.

4.  Under the 1961 Act:

a.  Declaring lower-than-presumptive profits did not automatically trigger audit unless turnover exceeded audit thresholds.

b.  Audit was mainly linked to:

opting out during the 5-year lock-in, or

exceeding turnover limits.

5.  Conclusion

This is a new and significant change under the Income-tax Act, 2025. From Tax Year 2026–27 onwards, any assessee declaring business income below the presumptive safe-harbour rates (6%/8%) must compulsorily undergo a tax audit, irrespective of past behaviour or turnover.