Mandatory Audit Guidelines During The Financial Year 2025-26

The Central Board of Direct Taxes (CBDT) has issued a notification¹ laying out situations in which cases shall be picked up for mandatory scrutiny (audit), during the financial year 2025-26²:

I. Scrutiny based on prior year(s)’ audits on recurring issues of facts and/or law:

• In Metro³ cities, cases where addition exceeding INR 5 million (USD 60K approximately) have been made in earlier years
• In Non-Metro cities, cases where addition exceeding INR 2 million (USD 24K approximately) have been made in earlier years⁴

and

• Where taxpayer has not preferred appeal; or
• Where appeal has been held in favour of Revenue (even if taxpayer has thereafter appealed to higher forum)

II. Scrutiny based on specific information regarding tax evasion:

• Cases where specific information pointing out tax evasion has been provided by any law enforcement agency

III. Scrutiny where exemptions/ deductions claimed by taxpayers based on registrations or approvals:

• Cases where taxpayers sought registrations as charitable trusts or for scientific research, and where such approvals were not granted or cancelled or withdrawn

and

• Taxpayer has claimed tax exemption-deduction

IV Scrutiny where surveys have been conducted on taxpayers post April 1, 2023

• Not applicable for withholding tax-related surveys
• Cases to be transferred to Central charges within 15 days of service of notice initiating the audit

V. Cases pertaining to search & seizure requisitions between April 1, 2023 and April 1, 2025

Note:

The due date for issuance of notice for auditing returns filed during the Financial Year 2024-25⁵, is June 30, 2025.

It is important to note that in all cases prior approvals of specified authorities are needed before finalising cases selected on these parameters. No communication to the National Faceless Assessment Centre is needed for International Tax and Central charges.

Courts in India take a strict view against the Revenue, when cases are picked up for mandatory scrutiny in violation of the prescribed guidelines.

¹ CBDT Notification F.No.225/37/2025/ITA-II
² Financial Year 2025-26 refers to the period April 1, 2025 to March 31, 2026
³ Metro cities – Mumbai, Delhi, Bangalore, Hyderabad, Chennai, Kolkata, Ahmedabad & Pune
⁴ The thresholds in the earlier year were INR 2.5 million and INR 1 million respectively – the revised thresholds indicate intent to narrow down cases selected for mandatory audit.
⁵ Financial Year 2024-25 refers to the period April 1, 2024 to March 31, 2025

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