Section 271B: Penalty for Failure to Get Accounts Audited

Key rules at a glance

The law applicable to a particular default depends on the relevant previous year or tax year, the audit obligation and statutory transition rules. The 2026 fee regime should not be retroactively applied to earlier defaults.

What Section 271B provides

Under Section 271B of the Income-tax Act, 1961, the Assessing Officer may direct a person who fails to get accounts audited or furnish an audit report as required by Section 44AB to pay a penalty equal to the lower of:

1. One-half per cent (0.5%) of total sales, turnover or gross receipts in business, or gross receipts in profession, for the relevant previous year or years; and
2. Rs. 1,50,000.

The penalty is not a fixed Rs. 1,50,000 in every case. The 0.5% calculation must be performed and compared with the statutory cap.

When is a tax audit required?

Section 44AB of the 1961 Act prescribes tax audit obligations for specified businesses and professions, including turnover or receipts-based criteria and certain presumptive-taxation situations. The applicability of the threshold and its conditions must be determined for the relevant financial year.

• Business: the general turnover threshold under Section 44AB is Rs. 1 crore, subject to the increased Rs. 10 crore threshold where cash receipts and cash payments each do not exceed 5% of their respective totals, subject to the statutory computation rules.
• Profession: the general gross-receipts threshold is Rs. 50 lakh.
• Presumptive taxation: separate audit triggers can arise under the relevant clauses of Section 44AB, including circumstances connected with Sections 44AD, 44ADA and 44AE.

For the 2025 Act, Section 63 governs the tax audit requirement. Verify the applicable tax-year provisions and rules rather than automatically applying the 1961 Act thresholds to later years.

How is the Section 271B penalty calculated?

Example 1: Where turnover is Rs. 80 lakh and an audit was legally required, 0.5% is Rs. 40,000. The maximum penalty under Section 271B would ordinarily be Rs. 40,000, subject to the law and facts.

Example 2: Where turnover is Rs. 5 crore and the audit requirement applies, 0.5% is Rs. 2,50,000. The statutory ceiling reduces the penalty to Rs. 1,50,000.

These examples assume that an audit was required, a default occurred and no statutory defence applies. The amount is not automatically payable merely because turnover exceeds a stated figure.

Reasonable cause under Section 273B

Section 273B provides that no penalty under Section 271B shall be imposed if the taxpayer proves that there was reasonable cause for the failure. Whether a reason qualifies depends on evidence and the facts of the case; the provision does not grant automatic waiver for every delay.

Maintain documentary records explaining the delay, audit engagement, communications with the auditor, system issues where relevant, and steps taken to comply. The taxpayer must also be afforded the applicable opportunity of being heard in penalty proceedings.

Important change from 1 April 2026: Section 428(c)

The Income-tax Act, 2025 as amended by the Finance Act, 2026 came into force on 1 April 2026, subject to specific provisions. The Finance Act, 2026 substituted Section 446, which had originally reproduced the tax audit penalty, with a provision concerning crypto-asset reporting. Accordingly, Section 446 should no longer be described as the operative tax audit penalty provision.

Instead, Section 428(c) provides a fee for failure to get accounts audited and furnish the report as required under Section 63:

• Rs. 75,000 for a delay of up to one month; and
• Rs. 1,50,000 thereafter.

This is a fee structure based on duration of delay, not the former 0.5% turnover calculation. Section 428(d) separately addresses failure to furnish an accountant's report under Section 172, with a different fee scale.

Practical compliance checklist

1. Identify the applicable assessment year or tax year and the governing Act.
2. Determine whether Section 44AB or Section 63 requires a tax audit, including any presumptive-taxation conditions.
3. Arrange for an eligible accountant to complete the audit and submit the prescribed report by the statutory specified date.
4. Keep filing acknowledgments, engagement records and evidence of any reasonable cause for historical Section 271B defaults.
5. If a notice or demand is issued, verify the cited statutory provision, period of delay, amount and available response or appeal remedies.

Legislative history of Section 271B

Section 271B was introduced by the Finance Act, 1984 with effect from 1 April 1985. The express words "without reasonable cause" were omitted in 1986; reasonable-cause protection is instead addressed through Section 273B. The statutory reference to furnishing the audit report was amended by the Finance Act, 1995. The penalty ceiling was raised from Rs. 1,00,000 to Rs. 1,50,000 by the Finance Act, 2010 with effect from 1 April 2011.

Frequently asked questions

What is the maximum Section 271B penalty?

For defaults governed by the Income-tax Act, 1961, it is the lower of 0.5% of the relevant turnover or gross receipts and Rs. 1,50,000.

Can Section 271B penalty be waived?

Section 273B protects a taxpayer who proves reasonable cause for the failure. Relief depends on the facts and supporting evidence.

Does Section 446 of the 2025 Act still impose the tax audit penalty?

No. The Finance Act, 2026 replaced Section 446. Tax audit defaults under Section 63 are now addressed by the fee in Section 428(c), for the tax years to which the new law applies.

Official legislation and guidance

• Income Tax Department: Section 271B (1961 Act)
• Income Tax Department: Section 273B reasonable cause
• Income Tax Department: Tax audit penalty FAQ
• Income-tax Act, 2025 as amended by Finance Act, 2026 (official PDF)