A tax audit is an examination of your accounts by a chartered accountant, who then files a report with the tax department. It adds cost and an earlier deadline, so it is worth knowing when it applies. For F&O traders two things decide it: turnover, and in some cases how profit compares with turnover.
General information, not tax advice
This article explains the rules in general terms for education. It is not tax advice and may not fit your situation. Tax law and due dates change, and the Income-tax Act, 2025 is new, so some points are still being interpreted. Consult a chartered accountant before you file or make a decision.
The law that applies
For FY 2025-26, the year for which returns are being filed in 2026, the rule is section 44AB of the Income-tax Act, 1961. From tax year 2026-27 the same rule sits in section 63 of the Income-tax Act, 2025, with the same turnover limits. The audit report also changes: Forms 3CA, 3CB and 3CD are replaced by a single Form 26 for tax year 2026-27 onwards.
Rule 1: turnover limits
- Audit is required if business turnover exceeds ₹1 crore in the year.
- The limit rises to ₹10 crore if cash receipts are no more than 5% of total receipts and cash payments no more than 5% of total payments. In other words, at least 95% of your money moves through banks or other non-cash modes.
- Exchange-traded F&O is settled through your bank account and broker, so F&O traders normally meet the 95% condition and the ₹10 crore limit applies to them.
Remember that turnover here is the ICAI figure, the sum of absolute profits and losses on each trade, not the value of contracts. Few retail traders reach ₹10 crore on that measure.
Rule 2: low profit and presumptive taxation
The second trigger is linked to presumptive taxation (formerly section 44AD, now section 58). That scheme deems 6% of digitally received turnover to be profit for businesses with turnover up to ₹2 crore, or ₹3 crore if cash receipts are no more than 5%.
Under the 1961 Act, which still governs FY 2025-26: if you had opted for the presumptive scheme in one of the previous five years and then opted out, and you now declare profit below the presumptive rate while your total income exceeds the basic exemption limit, you need an audit. If you had never used the scheme, declaring a loss or a profit below 6% did not by itself require an audit.
Under the 2025 Act, from tax year 2026-27, the wording of section 58 has been read by some practitioners as requiring books and an audit for any eligible business that declares less than the presumptive rate while total income exceeds the exemption limit, whether or not it ever opted in. Others read it as keeping the old position. As of this update no CBDT clarification has settled the point. If your turnover is within the presumptive limit and you report a loss or a profit under 6%, take this up with a CA early in the year.
Where the 6% rule does not reach
If total income from all sources is within the basic exemption limit (₹4 lakh under the new regime), the low-profit trigger does not apply. And if turnover is above the presumptive limit (₹3 crore for a mostly digital business) but not above ₹10 crore, the presumptive scheme is not available, so the low-profit rule does not apply either.
Quick reference
| Situation (at least 95% non-cash) | Audit? |
|---|---|
| Turnover above ₹10 crore | Yes, whatever the profit or loss |
| Turnover ₹3 crore to ₹10 crore | No, on turnover grounds |
| Turnover up to ₹3 crore, profit 6% of turnover or more | No |
| Turnover up to ₹3 crore, profit below 6%, total income above exemption limit, opted out of presumptive in last 5 years | Yes |
| Same, but never opted for presumptive | Not required for FY 2025-26; disputed from tax year 2026-27, ask a CA |
| Profit below 6%, total income within exemption limit | No |
Due dates
The audit report is due one month before the due date of the return. For FY 2025-26 (AY 2026-27), CBDT Circular No. 7/2026 extended the audit report date from 30 September to 21 October 2026 and the return date for audit cases from 31 October to 21 November 2026. For tax year 2026-27 under the new Act, the normal dates are 30 September 2027 for the audit report and 31 October 2027 for the return, unless extended.
Not getting an audit when one is required can lead to a penalty linked to turnover; under the 1961 Act it was 0.5% of turnover, capped at ₹1.5 lakh. The return can also be treated as defective.
Examples use illustrative values, not current market data. This is general education, not investment advice.