Late Tax Audit Report Penalty for FY 2025-26: Section 271B, the Section 273B Reasonable-Cause Defence and the New Section 428 Fee Under the Income-tax Act 2025

If your tax audit report for FY 2025-26 is not furnished by 30 September 2026, the late tax audit report penalty under section 271B of the Income-tax Act, 1961 applies: 0.5% of turnover or gross receipts, capped at Rs 1,50,000. It is not automatic. Section 273B bars the penalty where you prove reasonable cause, and the time to build that evidence is before the deadline passes, not when the show-cause notice arrives. This advisory sets out the penalty, the defence, the effect on your income-tax return and one change most practitioners have not yet noticed. From tax year 2026-27, the Income-tax Act, 2025 replaces this discretionary penalty with a flat fee that has no reasonable-cause defence.

Key Takeaways

• Deadline: the “specified date” for the FY 2025-26 (AY 2026-27) tax audit report is 30 September 2026. It is 31 October 2026 where a transfer pricing report under section 92E is required. As at 25 September 2026, no CBDT extension had been issued.
• Penalty: section 271B of the 1961 Act: the lesser of 0.5% of total sales, turnover or gross receipts and Rs 1,50,000. The Assessing Officer “may” levy it; it is discretionary.
• Defence: section 273B: no penalty under section 271B “if he proves that there was reasonable cause for the said failure”. The burden is on you.
• Which Act governs: FY 2025-26 is a tax year that began before 1 April 2026, so section 536(2)(d) of the Income-tax Act, 2025 preserves the 1961 penalty for it.
• Return consequence: an ITR without the audit report is “defective” under Explanation (bb) to section 139(9). If you do not cure it within 15 days of intimation (or the extended period), it is treated as invalid.
• From tax year 2026-27: section 428(c) of the Income-tax Act, 2025 charges a fee of Rs 75,000 for a delay of up to one month and Rs 1,50,000 after that.

What Is the Tax Audit Deadline for FY 2025-26?

Section 44AB of the Income-tax Act, 1961 governs the FY 2025-26 audit. The Act 2025 successor, section 63, applies only from tax year 2026-27. The audit report must be furnished “before the specified date”, defined as one month before the return due date under section 139(1). The Finance Act, 2026 recast Explanation 2 to section 139(1) as a table. For AY 2026-27 that gives:

If you are still deciding whether the audit applies at all, start with our guide to tax audit applicability for FY 2025-26. It covers the Rs 1 crore and Rs 10 crore business limits, the Rs 50 lakh professional limit and the presumptive-scheme trap.

How Much Is the Late Tax Audit Report Penalty Under Section 271B?

Section 271B reads: “If any person fails to get his accounts audited in respect of any previous year or years relevant to an assessment year or furnish a report of such audit as required under section 44AB, the Assessing Officer may direct that such person shall pay, by way of penalty, a sum equal to one-half per cent of the total sales, turnover or gross receipts, as the case may be, in business, or of the gross receipts in profession, in such previous year or years or a sum of one hundred fifty thousand rupees, whichever is less.”

Two features matter. First, the section covers both failures: not getting the accounts audited, and getting them audited but not furnishing the report by the specified date. A report that is ready on your auditor’s desk but not furnished on the portal is still a default. Second, the cap works in the taxpayer’s favour only above Rs 3 crore of turnover. Below that, 0.5% is the smaller figure.

Worked examples

Where section 92E applies, a separate penalty under section 271BA of Rs 1,00,000 applies for failure to furnish the transfer pricing report. It is also listed in section 273B.

Can You Avoid the Penalty? The Section 273B Reasonable-Cause Defence

Section 273B provides that, notwithstanding section 271B (and a long list of other penalty sections), “no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure.”

The Act does not define reasonable cause, and no list of accepted reasons applies automatically. Each case turns on its facts and on the evidence you produce. Explanations commonly advanced include:

• resignation, death or serious illness of the auditor close to the deadline, with evidence of prompt re-appointment;
• serious illness of the proprietor or key accounts staff;
• books of account or records being unavailable because of search, seizure or impounding, or a natural calamity;
• documented, sustained technical failure of the e-filing portal at the deadline;
• a bona fide belief, on a reasonable reading of the law, that the audit did not apply (for example, a genuine turnover computation issue).

What rarely helps is the explanation that the accountant was busy, the books were not closed, or the promoter was travelling. Those describe the default rather than excuse it. Every day of delay after the cause has ended also needs its own explanation.

Procedure if a penalty notice arrives

1. Show-cause notice: section 274(1) requires that no penalty order is made unless the assessee “has been heard, or has been given a reasonable opportunity of being heard”. Reply in writing, on time, with the evidence.
2. Approval thresholds: under section 274(2), a penalty above Rs 10,000 (Income-tax Officer) or Rs 20,000 (Assistant or Deputy Commissioner) needs prior approval of the Joint Commissioner.
3. Appeal: a penalty order can be appealed to the Commissioner (Appeals), and the reasonable-cause evidence goes with it.

What Happens to Your Income-tax Return if the Audit Report Is Late?

The penalty is only half the exposure. Explanation (bb) to section 139(9) of the 1961 Act treats a return as defective unless “the return is accompanied by the report of the audit referred to in section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing the report”. The consequences:

• The Assessing Officer may intimate the defect and allow 15 days (or a longer period on application) to rectify it.
• If it is not rectified, “the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return”. That brings in the non-filing consequences, including loss of the right to carry forward business losses.
• If you rectify after the period but before the assessment is made, the Assessing Officer “may condone the delay and treat the return as a valid return”.

Practical sequence: even if you miss 30 September, get the audit report furnished before you file the ITR, and file the ITR by 31 October 2026. A late audit report exposes you to section 271B. A late audit report and a late return together add interest, the late fee and the risk to losses.

The Change From Tax Year 2026-27: A Fixed Fee Instead of a Penalty

The penalty regime above is for FY 2025-26 only. Under the Income-tax Act, 2025, the original text placed the equivalent penalty in section 446. The consolidated text published by the Income Tax Department shows that section 446 was “Substituted by the Finance Act, 2026, w.e.f. 1-4-2026” and now deals with crypto-asset statements. The audit default has moved to section 428, headed “Fee for default in furnishing return of income, audited accounts and reports”. Under section 428(c), a person who “fails to get his accounts audited for any tax year or years and furnish the report of such audit as required under section 63” is “liable to pay by way of fee”:

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

Section 428(d) does the same for the transfer pricing accountant’s report under section 172: Rs 50,000 up to one month, Rs 1,00,000 thereafter.

Two practical consequences follow. A small business with Rs 1.2 crore of turnover, whose maximum 1961-Act penalty is Rs 60,000, faces a fixed Rs 75,000 fee under the 2025 Act for a delay of even one day. And the reasonable-cause argument that protects many assessees today does not appear in the text of section 428. The first audit under section 63 falls due in 2027, so this is the last year the old, discretionary regime applies.

Who Is Affected and What Should They Do?

Founders and MSME owners

Confirm today that your auditor has uploaded the report and that you have accepted it on the e-filing portal. In the portal workflow the report is not treated as furnished until the taxpayer accepts it. If you already know you will miss the date, record why in writing now.

CAs and audit firms

Prioritise engagements where the client’s turnover is between Rs 1 crore and Rs 3 crore, where exposure is proportionate, and presumptive-scheme cases pulled into audit. Keep a dated file note of every client-side delay (records not provided, approvals pending). It is the evidence your client will need under section 273B.

Finance teams of groups with international transactions

Your audit date is 31 October 2026, but the Form 3CEB and the tax audit report draw on the same numbers. Do not let the later date push the tax audit past it. Section 271B and section 271BA are separate exposures.

Checklist: If You Might Miss the September 30, 2026 Tax Audit Deadline

1. Recheck applicability on final turnover and cash-receipt/payment ratios (the Rs 10 crore limit requires both at 5% or less).
2. Ask the auditor for a firm upload date, and accept the report on the portal the same day.
3. If a delay is unavoidable, write down the cause the day it arises and keep the evidence: resignation letters, medical records, portal error screenshots with timestamps, seizure memos.
4. Furnish the report as soon as the cause ends. Every extra day weakens the defence.
5. File the ITR only after the audit report is furnished, and by 31 October 2026.
6. If a section 139(9) defect notice arrives, cure it within 15 days or apply for more time.
7. If a section 271B show-cause notice arrives, reply with the evidence. If the penalty is levied, appeal.
8. For FY 2026-27 onward, diarise the audit date as a hard deadline: the section 428(c) fee has no reasonable-cause escape in its text.

Frequently Asked Questions

What is the penalty for filing the tax audit report late for FY 2025-26?

Under section 271B of the Income-tax Act, 1961: the lesser of 0.5% of total sales, turnover or gross receipts and Rs 1,50,000. The Assessing Officer has discretion, and section 273B bars the penalty if you prove reasonable cause.

Has CBDT extended the tax audit due date for AY 2026-27?

As at 25 September 2026, no CBDT extension had been found. The specified date remains 30 September 2026 (31 October 2026 for section 92E cases). Plan to meet it rather than wait for an extension.

If I file the audit report on October 5, is my ITR still valid?

Yes, if the report is furnished before the return and the return is filed by 31 October 2026 with proof of furnishing. The late report still exposes you to section 271B, subject to the reasonable-cause defence.

Does the Income-tax Act, 2025 apply to my FY 2025-26 audit penalty?

No. Section 536(2)(d) of the Income-tax Act, 2025 provides that a penalty for a tax year beginning before 1 April 2026 “may be initiated and any such penalty may be imposed under the repealed Income-tax Act, as if this Act had not been enacted”. FY 2025-26 stays under section 271B.

Is there a reasonable-cause defence against the new section 428 fee?

Section 470 of the Income-tax Act, 2025, the reasonable-cause provision, lists penalty sections, and section 428 is not among them. The fee is expressed as an amount the person “shall be liable to pay”. Treat the tax year 2026-27 audit date as a hard deadline.

The Bottom Line

For the FY 2025-26 audit, a missed 30 September deadline is serious but not always fatal. The penalty is capped, discretionary and subject to a reasonable-cause defence, provided the evidence exists. That is the last year it works this way. From tax year 2026-27, the same default carries a fixed fee from the first day. For the substance your auditor will test, see our notes on Form 3CD clauses founders and CAs get wrong and the Section 40A(3) cash payment disallowance.

Running close to the September 30 deadline, or already past it? Tax Update India can help you plan the filing order, the reasonable-cause file and the reply to any notice. Talk to an expert on a quick call.

Sources

• Income-tax Act, 1961 as amended by the Finance Act, 2026 (sections 44AB, 139(1) Explanation 2, 139(9) and its Explanation clause (bb), 271B, 271BA, 273B, 274). Source: https://www.incometaxindia.gov.in/documents/d/guest/income_tax_act_1961_as_amended_by_fa_act_2026-1-pdf, retrieved 25 September 2026.
• Income-tax Act, 2025 as amended by the Finance Act, 2026 (sections 428(c) and (d), 446 with footnote “Substituted by the Finance Act, 2026, w.e.f. 1-4-2026”, 470, 536(2)(d)). Source: https://www.incometaxindia.gov.in/documents/d/guest/income_tax_act_2025_as_amended_by_fa_act_2026-pdf, retrieved 25 September 2026.
• Status per rule: Tax-audit specified date for AY 2026-27 = IN FORCE (30 September 2026; 31 October 2026 for section 92E cases; no CBDT extension found as at 2026-09-25; Regulatory Status Ledger row 2026-09-25). Tax audit under section 63 of the Income-tax Act, 2025 = IN FORCE (1 April 2026, tax year 2026-27 onward; Regulatory Status Ledger row 2026-09-25).

Disclaimer: This article is for general information only and does not constitute tax or legal advice. Statutory provisions have been cited from the Income Tax Department’s consolidated texts as retrieved on 25 September 2026. Whether a cause is “reasonable” depends on the facts and evidence in each case. Please consult a qualified professional before acting.

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CA Adityavikram Banka

Founder & Director at A S Banka Advisors Private Limited

The author is Founder of A. S. Banka Advisors Private Limited & Partner at Dhiraj & Dheeraj.

You can reach out to the author on : [email protected]

www.asbanka.com

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