Late Fee For Tax Audit Report

Late fee for delayed tax audit report has been completely overhauled in Budget 2026, converting the earlier discretionary penalty under section 271B into a fixed, mandatory fee linked to the period of delay, effective from 1 April 2026 (AY 2026‑27 onwards).

Background – From Penalty To Mandatory Fee

Under the existing regime up to FY 2025‑26, failure to get books audited or furnish the tax audit report attracted a penalty under section 271B of the Income‑tax Act, 1961, of 0.5% of turnover/gross receipts, capped at ₹1,50,000, with complete discretion to the Assessing Officer to drop penalty on showing “reasonable cause”.

Budget 2026, under the new Income‑tax Act, 2025 framework, removes this discretion and replaces it with a mandatory late fee mechanism for delay in obtaining and furnishing the tax audit report.

New Law – Late Fee For Tax Audit Report (Budget 2026)

Statutory provision and effective date

• The Finance Bill, 2026 introduces a fixed‑fee regime (referred to in public domain as proposed section 428 read with section 63 of the new Income‑tax Act, 2025).
• The new fee applies where a person:
  • is required to get accounts audited; and
  • fails to get such accounts audited and/or fails to furnish the tax audit report within the prescribed time.
• Effective from:
  • 1 April 2026;
  • applicable for tax year 2025‑26 / AY 2026‑27 and subsequent years.

Quantum of late fee – graded structure

Where an assessee fails to comply with tax audit obligations under the new law, the following fee is payable:

• ₹75,000 – for delay up to one month from the prescribed due date of the tax audit report.
• ₹1,50,000 – for delay beyond one month.

Several professional summaries and news reports have captured this succinctly as: “One‑day delay in tax audit may cost ₹75,000; delay of more than 30 days may cost ₹1,50,000.”

Nature of levy – fee vs penalty

• Characterised as a fee for non‑compliance with procedural requirement (getting accounts audited and furnishing report), not a “penalty” requiring separate penalty proceedings.
• The Explanatory discussions in tax commentaries emphasise:
  • Automatic applicability once default is established.
  • No requirement of demonstrating mens rea or issuing separate penalty notice, though principles of natural justice on factual disputes should still apply.

No More “Reasonable Cause” Defence

A key paradigm shift is elimination of the “reasonable cause” shield that existed under section 273B read with section 271B.​

• Under old law: penalty for failure to get accounts audited could be waived entirely if assessee showed a reasonable cause, such as:
  • serious illness of auditor or key finance personnel;
  • natural calamity;
  • technical glitches on portal etc. (numerous judicial precedents).​
• Under the new fee regime:
  • Fee is mandatory, not dependent on AO’s discretion.
  • Commentary by tax experts squarely notes that even a single day delay will mandatorily trigger the ₹75,000 fee.​
  • The policy objective is to reduce litigation and bring certainty by moving away from subjective “reasonable cause” determinations.

This means that in practice, late tax audit for even small and medium businesses can have a disproportionate cost impact, compelling much stricter internal compliance discipline.

Due Dates – Context For “Delay”

To understand “delay”, one must read the fee provision with the prescribed due date for tax audit reports.

• For FY 2025‑26 (AY 2026‑27), professional content and compliance calendars indicate:
  • Due date for completion of tax audit under section 44AB (and furnishing of tax audit report) remains aligned with 30 September 2026 for regular tax audits (subject to any future CBDT notifications/relaxations).​
  • Return filing due date for audit cases is later (generally 31 October 2026), but the tax audit report is due earlier, typically by end of September.

Thus, under the new regime, delay will be measured from this statutory tax audit due date (e.g., 30 September 2026 or such other notified date), and the fee slab (₹75,000 vs ₹1,50,000) will be determined by how long default continues beyond that date.

Illustrative Scenarios For Practitioners

These examples can be directly used in your blog to make the impact tangible for readers.

Example 1 – One‑day delay by a mid‑size trading concern

• Facts:
  • Turnover: ₹8 crore, tax audit applicable.
  • Due date of tax audit report for FY 2025‑26: 30 September 2026.
  • Report uploaded on: 1 October 2026.
• Under old section 271B:
  • Max penalty: 0.5% of turnover = ₹4,00,000, but capped at ₹1,50,000, with significant scope to argue reasonable cause and seek waiver.​
• Under new regime (from FY 2025‑26):
  • Mandatory fee: ₹75,000 (since delay is up to one month).

Example 2 – Prolonged delay by more than a month

• Facts:
  • Turnover: ₹50 lakh, tax audit required due to section 44AD/44ADA/44AB triggers.
  • Tax audit report furnished on 10 November 2026 (about 41 days after 30 September 2026).
• Fee implication:
  • Flat fee of ₹1,50,000, despite small turnover and despite delay just crossing one‑month mark.

This illustrates the regressive nature of the fee for smaller assessees and will be a point of criticism/comment in many professional analyses.

Interaction With Other Compliance Fees And Penalties

Budget 2026 follows a wider theme of converting various procedural penalties into fixed late fees across the new Income‑tax Act.

Key parallel provisions useful to cross‑reference in your blog:

• Fee for delay in furnishing CA reports under other provisions (e.g., transfer pricing or specific certificate/report requirements):
  • Separate fee of ₹50,000 for delay up to one month and ₹1,00,000 for delay beyond one month has been proposed where a required report from a chartered accountant is furnished late (distinct from tax audit report itself).
• Late fee for income‑tax returns:
  • Budget commentaries reiterate that for ordinary ITRs, late fee continues at relatively modest levels: up to ₹1,000 if total income does not exceed ₹5 lakh, and up to ₹5,000 for others.
• Other statement/reporting defaults:
  • Finance Bill, 2026 proposes fees for delay in statements of financial transactions and similar procedural compliances, typically computed per day, subject to overall caps (e.g., ₹200 per day up to a maximum of ₹1 lakh in certain cases).

This ecosystem shows a clear legislative intent: strict, predictable and automatic monetary consequences for any delay in core compliances, particularly those involving third‑party validations such as tax audits.

Practical Guidance For Taxpayers And CAs

You can conclude your blog with a practitioner‑oriented section:

• Robust internal timelines:
  • Target completion of audits at least 15–20 days before statutory due dates to build buffer for last‑minute portal or documentation issues.
• Engagement letters and communication:
  • Clearly communicate the late fee risk (₹75,000/₹1,50,000) to clients upfront in engagement letters so that delay originating from client side is properly documented.
• Documentation of efforts:
  • Maintain email/WhatsApp trails and work‑papers showing repeated follow‑ups with clients for data; while this may not avoid the fee under the new law, it is relevant from professional negligence and disciplinary perspectives.
• Portal/technical glitches:
  • In case of systemic outages, keep screenshots, acknowledgments and circulars, as there may eventually be CBDT‑level relaxations of due dates in genuine mass‑impact situations, as seen in past years.

News analyses strongly emphasise that the biggest behavioural change expected from Budget 2026 is that neither CAs nor taxpayers can afford to treat tax audit deadlines casually anymore, as even a minor slippage now carries a very significant fixed cost.

CA Ankit Gulgulia (Jain)

FCA, CWM (AAFM-US), CBV, CIFRS, R-ID, B.COM (H), RV* (IBBI)

Practising Chartered Accountant in Delhi NCR Since 2011. He can be contacted at ankitgulgulia@gmail.com or +91-9811653975.