Section 271B Penalty for Late Tax Audit: 0.5% of Turnover, Maximum ₹1.5 Lakh

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 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 before the tax-audit return due date — normally 31 October (and 30 November for transfer-pricing cases).

Who needs a tax audit (s.44AB)

⚠️ — confirm the current s.44AB thresholds and presumptive limits for the relevant financial year (FY 2025-26 / AY 2026-27) before finalising. Thresholds have been revised periodically and the 5% cash-tolerance rule for the ₹10 crore limit has its own conditions.

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 the proviso to 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, 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 and the penalty is payable before appeal remedies are exhausted.

A separate point: if Suman's audit is completed but the report in Form 3CB is handed to the AO after 31 October, 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 31 October.
• Distinguish the audit deadline from the ITR deadline. An audit report filed with a late ITR still attracts 271B if the report missed 31 October. 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 the proviso to 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?
If the audit report was furnished by the due date, the 271B default is on the late ITR, not the audit — but 234A interest and the 234F fee apply to the late return 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)

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