Tax Audit under the Income‑tax Act, 2025:A Comprehensive Guide to the New Audit Form (Form No. 26)

Introduction – A Paradigm Shift in the Tax Audit Framework

The Income‑tax Act, 2025, effective from 1 April 2026, replaces the Income‑tax Act, 1961, with an objective of simplification, rationalisation, and digitization of India’s direct tax regime. Among its most impactful reforms for Chartered Accountants and tax professionals is the complete restructuring of tax audit reporting.

The long‑standing audit forms—Form 3CA, Form 3CB, and Form 3CD, prescribed under section 44AB of the 1961 Act—are withdrawn and merged into a single consolidated audit report: Form No. 26, prescribed under Section 63 of the Income‑tax Act, 2025, read with Rule 47 of the Income‑tax Rules, 2026.

This reform marks a fundamental shift in the philosophy of tax audits—from a limited book‑to‑tax reconciliation exercise to a comprehensive compliance assurance framework.

Applicability Timeline – Understanding the Transition Clearly

A crucial aspect for professionals is understanding when the new audit form applies:

• Income earned up to 31 March 2026 (Financial Year 2025‑26) continues to be governed by the Income‑tax Act, 1961, and audit reports must be furnished in Forms 3CA / 3CB / 3CD.

• Income earned from 1 April 2026 onwards (Tax Year 2026‑27) is governed by the Income‑tax Act, 2025, and Form No. 26 becomes mandatory.

The new Act introduces the concept of a “Tax Year”, thereby discontinuing the traditional distinction between Financial Year and Assessment Year for future periods.

Who is Required to Furnish Form No. 26?

Form No. 26 applies to all assessees liable to tax audit under Section 63, including both individuals and non‑individuals, such as:

• Companies

• Partnership firms and LLPs

• Individuals and HUFs carrying on business or profession

• Trusts, AOPs, BOIs, and cooperative entities

The audit thresholds and triggers broadly mirror the earlier structure of section 44AB, though renumbered and reorganized under the new Act. The obligation arises based on turnover, gross receipts, presumptive taxation conditions, or declaration of losses, as applicable.

Structure of Form No. 26 – A Unified Audit Report

Form No. 26 is divided into four distinct parts, consolidating and rationalising the earlier audit framework.

Part A – Particulars of the Assessee

This part captures structured master data, including:

• PAN, legal status, and residential status

• Nature of business or profession

• Tax Year

• Details of partners, members, or changes in the constitution

The objective is standardization and system‑level integration with the income‑tax portal.

Part B – Statement of Particulars (Core Compliance Section)

Part B represents the most significant expansion over the earlier Form 3CD. It requires deep disclosures relating to:

• Income computation and ICDS‑based adjustments

• TDS/TCS compliance analytics

• MSME payment compliance

• Loans, deposits, and advances with coded transaction modes

• Settlement expenses for statutory contraventions

• GST and indirect tax reconciliation

• Disclosure of digital accounting systems

This section positions the tax audit as a holistic compliance verification tool, not merely a reporting exercise.

Part C – Audit Report (Accounts Audited under Other Law)

Applicable where the assessee’s accounts are audited under another statute (e.g., the Companies Act or the LLP Act). This part replaces the functional role of Form 3CA.

Part D – Audit Report (Accounts Not Audited under Other Law)

Applicable where accounts are audited only for income‑tax purposes. This part replaces Form 3CB. The bifurcation ensures clarity without duplication.

Illustrative Case Studies

Case Study 1 – Individual Proprietor

Mr. A, a proprietor carrying on trading activity with a turnover exceeding the audit threshold, is not subject to any other statutory audit.

• Applicable Form: Form No. 26 – Parts A, B, and D

• Key audit focus areas:

  • Presumptive taxation eligibility

  • Cash vs digital transaction thresholds

  • MSME payment compliance

  • ICDS adjustments

This mirrors the earlier Form 3CB‑3CD regime in a consolidated format.

Case Study 2 – Company Assessee

XYZ Pvt. Ltd., audited under the Companies Act, 2013.

• Applicable Form: Form No. 26 – Parts A, B, and C

• The auditor must align statutory audit findings with expanded tax‑specific disclosures.

This replaces the earlier Form 3CA‑3CD mechanism.

Due Date and Consequences of Non‑Compliance

Due Date for Filing

The audit report must be furnished on or before the “specified date” as notified annually by the CBDT for the relevant tax year. Professionals should closely monitor CBDT notifications, as extensions are no longer assumed.

Penalty for Delay

The Income‑tax Act, 2025, introduces fixed monetary penalties:

• ₹75,000 for a delay of up to one month

• ₹1,50,000 for delay beyond one month

This replaces the earlier turnover‑linked penalty regime and introduces certainty, though with limited relief for smaller assessees.

Key Professional Implications

• Form No. 26 substantially expands the auditor’s responsibility.

• Tax audits now integrate direct tax, indirect tax, digital systems, and regulatory compliance.

• Robust audit planning, documentation, and internal quality control are essential.

• Transitional clarity between FY 2025‑26 and Tax Year 2026‑27 is critical

Chartered Accountant’s Tax Audit Checklist

Applicable for Tax Year 2026‑27 (Income‑tax Act, 2025 | Form No. 26)

A. Preliminary Audit Planning

• Confirm applicability of ITA 2025 and Tax Year 2026‑27

• Identify the audit trigger under Section 63

• Determine the applicability of Part C or Part D

B. Assessee Master Data (Part A)

• Verify PAN, status, and nature of business.

• Check changes in the constitution, partners, and profit‑sharing ratios.

• Align the portal profile with the audit disclosures.

C. Books of Account & Systems

• Confirm the method of accounting and ICDS compliance

• Validate digital accounting system disclosures

• Ensure completeness of ledgers and year‑end provisions

D. Core Compliance Review (Part B)

Income & Computation

• Reconcile profit as per books vs tax computation

• Validate ICDS adjustments

MSME Payments

• Identify MSME vendors

• Segregate on‑time and delayed payments

• Quantify disallowable interest

TDS / TCS

• Verify section mapping under ITA 2025

• Match challans, returns, and Form 168

• Identify short deduction or late deposit risks

Loans & Deposits

• Identify cash and journal‑entry transactions

• Ensure correct coded disclosures

Non‑Allowable Expenditure

• Review penalties, settlements, compounding fees

• Ensure proper disclosure and disallowance

GST Linkage

• Reconcile GST turnover vs books vs audit report

• Document reconciliation differences

E. Audit Opinion (Part C / Part D)

• Ensure consistency with statutory audit (where applicable)

• Address qualifications and emphasis matters explicitly

• Use the prescribed schema‑based language only

  
  

F. Final Review & Filing

• Cross‑verify internal consistency across schedules

• Validate JSON/XML schema before upload

• Maintain detailed working papers and management representations

G. Timeline & Risk Control

• Track notified “specified date”

• Advise the client on penalty exposure

• Ensure the audit report is filed before ITR submission

Conclusion

The introduction of Form No. 26 under the Income‑tax Act, 2025, represents the most comprehensive transformation of tax audit practice in India in decades. For Chartered Accountants, the audit now functions as a strategic compliance assurance mechanism, demanding higher diligence, stronger documentation, and deeper cross‑verification.

Firms and professionals who adapt early—through structured checklists, system readiness, and enhanced audit methodologies—will not only mitigate risk but also significantly enhance their advisory value in the new tax regime.