Section 271B Penalty for Late Tax Audit: 0.5% of Turnover, Maximum ₹1.5 Lakh
Section 271B ITA 1961 penalises failure to get a tax audit under Section 44AB, or to furnish the audit report by the due date, at 0.5% of turnover or gross receipts, capped at ₹1,50,000. A company with ₹2.6 crore turnover (assuming cash above 5%; the ₹10 crore threshold applies instead where cash receipts and payments are each 5% or less) faces ₹1,30,000. Unlike 234A interest, 271B is a discretionary penalty that can be waived for reasonable cause.
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Updated 10 Oct 2026: For AY 2026-27, CBDT Circular No. 07/2026 (28 Sep 2026) extends the tax-audit report date to 21 October 2026 and the ITR due date for audited (non-transfer-pricing) assessees to 21 November 2026.
Which law applies: this guide uses Income-tax Act 1961 section numbers, which govern FY 2025-26 (AY 2026-27) and earlier. From tax year 2026-27 (1 April 2026) the Income-tax Act 2025 applies and section numbers change.
Section 271B of the Income Tax Act 1961 penalises failure to get a tax audit under Section 44AB, or failure to furnish the audit report by the due date, at 0.5% of total turnover or gross receipts, capped at ₹1,50,000. A company with ₹2.6 crore turnover (assuming cash receipts or payments above 5%; the ₹10 crore threshold applies instead where each is 5% or less) faces ₹1,30,000; a ₹8 crore company hits the ₹1.5 lakh cap. Unlike 234A interest, 271B is a discretionary penalty — the Assessing Officer must pass an order and reasonable cause can waive it.
What the law actually requires
Section 271B, Income Tax Act 1961 — penalty for failure to get accounts audited under Section 44AB or to furnish the audit report in Form 3CA/3CB (with Form 3CD) within the prescribed time. The penalty is 0.5% of the total sales, turnover or gross receipts of the relevant previous year, subject to a maximum of ₹1,50,000. The audit report must be furnished by the "specified date" under clause (ii) of the Explanation to Section 44AB — normally 30 September (and 31 October for transfer-pricing cases); for AY 2026-27 the non-transfer-pricing date is extended to 21 October 2026 (CBDT Circular No. 07/2026 dated 28 Sep 2026).
Who needs a tax audit (s.44AB)
A private limited company with turnover above the threshold must get its accounts audited and the audit report furnished even if it files its ITR late — and the audit report itself has a separate due date. Missing the audit deadline is its own default under 271B, independent of when the ITR is finally filed.
271B vs 234A — interest and penalty are different animals
Both can hit the same company in the same season: an audit case that is audited late and files its ITR late pays 271B penalty and 234A interest (plus the 234F late-filing fee). The interest is non-discretionary arithmetic; the penalty requires an order and is contestable.
Reasonable cause
The penalty is not automatic. Under Section 273B (which applies to several sections including 271B), no penalty is levied if the assessee proves that there was reasonable cause for the failure. Accepted grounds include the serious illness or death of the accountant, loss of records in a natural calamity, and similar circumstances outside the assessee's control. Merely being busy, or "the auditor didn't deliver in time," is generally not enough — and the burden is on the company to prove the cause.
Worked example: Suman Distributors Pvt Ltd skips the audit
Suman Distributors Pvt Ltd has turnover of ₹2.6 crore in FY 2025-26, crosses the s.44AB threshold (assuming cash above 5%; the ₹10 crore threshold applies instead where cash receipts and cash payments are each 5% or less), and never gets its accounts audited. The default is detected during processing.
If Suman's turnover were ₹8 crore, the computed penalty would be ₹4,00,000 — but the cap binds at ₹1,50,000. The same cap applies to a ₹50 crore company, which is why the penalty is sometimes described as "0.5% of turnover, up to ₹1.5 lakh." Suman can seek waiver by showing reasonable cause; without it, the AO passes an order.
A separate point: if Suman's audit is completed but the report in Form 3CB is e-filed on the income-tax portal after the specified date (30 September normally; 21 October 2026 for AY 2026-27 under CBDT Circular No. 07/2026 dated 28 Sep 2026), that is also a 271B default — the section covers both "failure to get the accounts audited" and "failure to furnish the report in time."
What a director should actually watch
- Book the audit before the threshold, not after the year-end. If FY 2025-26 turnover will cross ₹1 crore (or ₹10 crore under the cash-tolerance rule), commission the audit early — the report due date is 30 September (31 October in transfer-pricing cases); for AY 2026-27 the non-transfer-pricing date is 21 October 2026 (CBDT Circular No. 07/2026 dated 28 Sep 2026).
- Distinguish the audit deadline from the ITR deadline. An audit report filed with a late ITR still attracts 271B if the report missed its due date (30 September; 21 October 2026 for AY 2026-27). File the report in time even if the return follows later.
- Document reasonable cause if you are late. If the audit genuinely could not be completed — illness of the auditor, calamity, loss of records — gather evidence and present it when the penalty is proposed; 273B waiver is the only realistic escape.
- Treat the 271B order as contestable, 234A as not. Interest accrues automatically; a penalty requires an AO order and can be appealed. Do not conflate the two in your provision.
- A cost audit is a separate matter. Failure to conduct a cost audit where required is penalised separately under the Companies Act, not under 271B.
FAQ
What is the 271B penalty?
0.5% of total sales, turnover or gross receipts, subject to a maximum of ₹1,50,000, for failure to get a tax audit under s.44AB or to furnish the report in time.
What is the tax audit threshold?
Turnover over ₹1 crore for business (₹10 crore where cash receipts and payments are each 5% or less of totals); gross receipts over ₹50 lakh for profession. Confirm current limits with your CA.
Can the 271B penalty be waived?
Yes, if the company proves reasonable cause under s.273B — for example, the accountant's serious illness or a natural calamity.
Is 271B automatic like 234A?
No. 234A interest is automatic and self-computed; 271B requires the Assessing Officer to pass an order and is appealable.
Does filing the ITR on time but the audit report late attract the penalty?
Yes. 271B covers both the failure to get the audit done and the failure to furnish the report by the due date.
Does 271B also apply if I get the audit done but file the ITR late?
No. If the audit report was furnished by its due date, there is no s.271B default: s.271B covers only the failure to get the accounts audited or to furnish the audit report. The late return attracts s.234A interest and the s.234F fee instead.
Use the compliance calendar to track tax-audit and ITR deadlines: /tools/compliance-calendar. For a tax audit and compliance review, visit pvtltd.co.
Sources
- Section 271B, Income Tax Act 1961
- Section 44AB, Income Tax Act 1961 (tax audit requirement)
- Section 273B ITA 1961 (reasonable cause waiver)
- Form 3CA / 3CB and 3CD (tax audit report)
- Sections 44AD, 44ADA and 274, Income Tax Act 1961 (presumptive limits; penalty order after hearing)
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See Also
Frequently asked questions
What is the 271B penalty?
0.5% of total sales, turnover or gross receipts, subject to a maximum of ₹1,50,000, for failure to get a tax audit under s.44AB or to furnish the report in time.
What is the tax audit threshold?
Turnover over ₹1 crore for business (₹10 crore where cash receipts and payments are each 5% or less of totals); gross receipts over ₹50 lakh for profession. Confirm current limits with your CA.
Can the 271B penalty be waived?
Yes, if the company proves reasonable cause under s.273B — for example, the accountant's serious illness or a natural calamity.
Is 271B automatic like 234A?
No. 234A interest is automatic and self-computed; 271B requires the Assessing Officer to pass an order and is appealable.
Does filing the ITR on time but the audit report late attract the penalty?
Yes. 271B covers both the failure to get the audit done and the failure to furnish the report by the due date.
Does 271B also apply if I get the audit done but file the ITR late?
No. If the audit report was furnished by its due date, there is no s.271B default: s.271B covers only the failure to get the accounts audited or to furnish the audit report. The late return attracts s.234A interest and the s.234F fee instead.
Next steps on tax audit under section 44AB
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