Four days from now the tax audit report for AY 2026-27 is due. Most of what is written about the deadline stops at the date. The more useful question, for the files that will not make it, is what the failure actually costs — and the answer changes completely one year from now.
Today: a penalty that scales, and can be argued
For this year's report the governing provision is section 271B of the Income-tax Act, 1961, and three features of it matter:
- It is capped, not fixed. The amount is 0.5% of total sales, turnover or gross receipts, or ₹1,50,000, whichever is less. For a client with ₹2 crore of turnover that is ₹1,00,000. For one with ₹60 lakh it is ₹30,000. The ₹1,50,000 everyone quotes is the ceiling, reached only above ₹3 crore.
- It is discretionary. The Assessing Officer may direct it. Nothing makes it automatic.
- It can be defended. Under section 273B no penalty is imposed where the assessee proves reasonable cause for the failure. The burden sits with the assessee, and it is a real burden — but it is a door.
From next year: a fee that does none of those things
For tax year 2026-27 the same failure — not getting the accounts audited, or not furnishing the report under section 63 — attracts a fee under section 428(c) of the Income-tax Act, 2025:
- ₹75,000 where the delay runs up to one month.
- ₹1,50,000 after that.
Read those two lists next to each other and the change is not the amount. It is the shape.
What actually changed
It stops scaling with size. The small practice's client is the one this lands on. A business with ₹60 lakh of receipts faced ₹30,000 under the old rule; the same business pays ₹75,000 for being a fortnight late, and ₹1,50,000 beyond that. A business with ₹10 crore of turnover paid the ₹1,50,000 ceiling before and pays ₹1,50,000 now. The burden moves down the size scale, not up.
The month matters in a way it never did. Under section 271B the delay's length was irrelevant to the arithmetic — one day late and six months late cost the same. Under section 428(c) the first month is worth ₹75,000. A file that slips to the thirty-second day doubles its cost for one day's drift.
And the defence appears to go. Section 428 sits outside the list of penalty sections in section 470, and is framed as an amount a person shall be liable to pay rather than one an officer may direct — which reads as a fee, not a penalty, with no reasonable-cause relief attached.
That last point is a reading of the text, not a settled position, and no case has tested it. Plan on the assumption that the ₹75,000 is unconditional; do not advise a client that it certainly is.
What this means for the four days left
For this year the old rules still apply in full, which is worth saying plainly because the two regimes are being discussed in the same breath:
- A report filed after 21 October 2026 is exposed to section 271B, capped by turnover, at the officer's discretion, with the section 273B defence available.
- The reasonable cause has to be recorded now, not reconstructed in a reply two years later. A note on the file saying the client's books reached you on a date, or a specific event that stopped the work, is evidence. A memory is not.
- The return for audit cases is 21 November 2026. The report and the return are different dates with different consequences; missing one is not missing the other.
And for the planning conversation after it
The firms this will hurt are the ones carrying a long tail of small clients who file late every year because nothing much happened when they did. That calculation stops working next year. Somebody has to be told that before the season, not during it — the sentence "it was only ₹30,000 last time" is the one to retire now.
Worth doing while the current season is fresh: list the clients whose reports went in late this year, and put the ₹75,000 against each. That total is the real argument for changing how the season is run, and it is a number, not an opinion.
Questions this answers
What is the penalty for filing the tax audit report late for AY 2026-27?
Section 271B of the Income-tax Act, 1961 applies: 0.5% of total sales, turnover or gross receipts, or ₹1,50,000, whichever is less. The ₹1,50,000 is a ceiling, so it is only reached where turnover exceeds ₹3 crore.
Is the section 271B penalty automatic?
No. The Assessing Officer may direct it, so it is discretionary, and section 273B provides that no penalty is imposed where the assessee proves reasonable cause for the failure. The burden of proving that cause is on the assessee.
What changes from tax year 2026-27?
The failure to get accounts audited or furnish the report under section 63 of the Income-tax Act, 2025 attracts a fee under section 428(c): ₹75,000 where the delay is up to one month and ₹1,50,000 after that. It does not vary with turnover.
Does a reasonable-cause defence survive under the new fee?
That is unsettled. Section 428 sits outside the list of penalty sections in section 470 and is framed as an amount a person shall be liable to pay rather than one an officer may direct, which reads as a fee without reasonable-cause relief. No case has tested it, so plan on the assumption that the fee is unconditional without advising a client that it certainly is.
Who is worst affected by the change?
Smaller clients. A business with ₹60 lakh of gross receipts was exposed to about ₹30,000 under section 271B and faces ₹75,000 under the new fee, while a business above ₹3 crore already paid the ₹1,50,000 ceiling and sees no increase.
Is the report deadline the same as the return deadline?
No. For AY 2026-27 the audit report is due 21 October 2026 and the return in those audit cases 21 November 2026. They are separate dates with separate consequences.
Look up any section
The Income-tax Act 2025 section finder lists every 1961 TDS and TCS section with its 2025 section and Table serial, the rate and threshold as enacted, and the page of the Act, with a TDS rate chart and a TCS rate chart.