Taxpayers filing their Tax Audit Reports for Financial Year 2025-26 after the prescribed deadline will not be liable to pay the new mandatory late fee of ₹75,000 or ₹1.50 lakh under Section 428(c) of the Income-tax Act, 2025.

Although the new Income-tax Act came into force on April 1, 2026, its higher, fixed late-fee regime applies prospectively to tax years beginning on or after that date. Tax audits relating to FY 2025-26 concern a financial year that began on April 1, 2025. Consequently, defaults connected with that year continue to be governed by the Income-tax Act, 1961.

The position follows from the repeal-and-savings provisions contained in Section 536 of the Income-tax Act, 2025. Section 536(2)(c) expressly provides that the repealed Income-tax Act, 1961 will continue to apply to proceedings initiated on or after April 1, 2026 in respect of any tax year beginning before that date.

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More specifically, Section 536(2)(d) permits penalty proceedings concerning a tax year beginning before April 1, 2026 to be initiated and decided under the repealed Income-tax Act as if the new legislation had not been enacted.

Accordingly, delayed filing of a Tax Audit Report for FY 2025-26 will continue to be examined under Sections 44AB, 271B and 273B of the Income-tax Act, 1961. The mandatory late fee introduced by Section 428(c) of the Income-tax Act, 2025 does not apply merely because the report is furnished after the new legislation’s commencement.

New Act Introduces Mandatory Late Fee

Section 428(c) of the Income-tax Act, 2025 prescribes a fee where a person fails to get the accounts audited and furnish the audit report required under Section 63.

The provision stipulates a late fee of:

• ₹75,000 where the delay continues for up to one month; and
• ₹1,50,000 where the delay exceeds one month.

This is structured as a statutory fee arising from the delay, unlike the penalty mechanism under the Income-tax Act, 1961, where the Assessing Officer considers the default and the taxpayer may establish reasonable cause.

The official text of the new Act confirms that it generally came into force on April 1, 2026. It also expressly preserves the operation of the old Act for proceedings and penalties relating to tax years beginning before that date. Income-tax Act, 2025

FY 2025-26 Remains Governed by Old Act

The crucial factor is the financial year to which the audit obligation relates—not merely the date on which the report is eventually uploaded.

FY 2025-26 commenced on April 1, 2025 and ended on March 31, 2026. It is therefore a tax year beginning before April 1, 2026. Section 536 preserves the substantive and procedural provisions of the Income-tax Act, 1961 for proceedings relating to that year.

As a result, the tax-audit requirement continues to arise under Section 44AB of the Income-tax Act, 1961, while any consequence of non-compliance must be considered under Section 271B, subject to Section 273B.

The mere fact that the due date for furnishing a report, or the actual delayed filing, falls after April 1, 2026 does not by itself bring Section 428(c) into operation for FY 2025-26.

Penalty Under Section 271B Is Not Automatic

Section 271B of the Income-tax Act, 1961 authorises the Assessing Officer to impose a penalty where a person fails to get the accounts audited or furnish the prescribed audit report as required under Section 44AB.

The maximum penalty is the lower of:

• 0.5% of total sales, turnover or gross receipts of the business or profession; or
• ₹1,50,000.

However, the penalty under Section 271B is not an automatic fee payable immediately upon delayed filing. It ordinarily requires the initiation of penalty proceedings, consideration of the taxpayer’s explanation and the passing of an appropriate order by the competent authority.

This distinguishes the old regime from the fixed late fee contemplated under Section 428(c) of the new Act.

Reasonable-Cause Protection Remains Available

Taxpayers also retain the protection of Section 273B of the Income-tax Act, 1961 for FY 2025-26.

Under Section 273B, no penalty under Section 271B is imposable where the taxpayer proves that there was a reasonable cause for the failure. The provision therefore gives taxpayers an opportunity to explain the circumstances that prevented timely completion or furnishing of the Tax Audit Report.

Depending upon the facts, reasons such as the loss or destruction of accounting records, serious illness, unavoidable delay in finalisation of accounts, resignation of the auditor, technical difficulties supported by evidence, or other circumstances beyond the taxpayer’s control may be placed before the tax authority. Whether the explanation constitutes reasonable cause must be determined on the facts and supporting material of each case.

Taxpayers should therefore preserve correspondence, portal screenshots, medical documents, records of technical errors and other contemporaneous evidence explaining the delay.

No Immunity From All Consequences

The exclusion of the new mandatory late fee does not mean that delayed tax-audit compliance for FY 2025-26 is free from every consequence.

A taxpayer may still face penalty proceedings under Section 271B of the Income-tax Act, 1961. The protection available is that the penalty is not an automatic late fee and can be resisted by establishing reasonable cause under Section 273B.

The applicable position for FY 2025-26 may therefore be summarised as follows:

New Late-Fee Regime Applies Prospectively

The ₹75,000 and ₹1.50 lakh fee under Section 428(c) represents a major change in the consequences of delayed tax-audit compliance. Its application, however, must be read with the commencement and savings provisions of the new Act.

For tax years beginning on or after April 1, 2026, taxpayers will have to examine their obligations under Section 63 and the corresponding fee liability under Section 428(c). But tax audits for FY 2025-26 remain within the preserved framework of the Income-tax Act, 1961.

Therefore, a delayed Tax Audit Report for FY 2025-26 does not attract the new mandatory late fee of ₹75,000 for a delay of up to one month or ₹1.50 lakh for a longer delay. Any non-compliance will instead be dealt with under the old penalty regime, including the statutory reasonable-cause protection available to taxpayers.

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