Penalty for not filing tax audit — Section 271B explained
A missing or late tax audit report attracts a fee under Section 271B of 0.5% of your turnover or gross receipts, capped at Rs 1,50,000, unless you can show reasonable cause for the delay. This is separate from interest on any unpaid tax, and separate from the loss of loss carry-forward that can follow a late return.
How the fee is calculated
The fee is 0.5% of the turnover or gross receipts that made 44AB applicable to you in the first place, subject to a ceiling of Rs 1,50,000. A business with Rs 2 crore turnover and no reasonable cause would face a fee of Rs 1,00,000 (0.5% of Rs 2 crore); a business with Rs 5 crore turnover would still be capped at Rs 1,50,000 rather than the uncapped 0.5% figure.
Reasonable cause can waive the fee
The law allows the fee to be waived if you can demonstrate reasonable cause — things like a genuine natural calamity, resignation of the auditor at a late stage with evidence of timely engagement of a replacement, or a bona fide interpretational dispute about applicability. This isn't automatic; it needs to be argued and accepted by the assessing officer, and simply being busy or unaware of the requirement doesn't usually qualify.
It's not the only cost of missing the deadline
Section 271B is one of three separate consequences. Interest on any unpaid tax continues to accrue regardless of the audit fee. And if the return itself (not just the audit report) is filed after the original due date, you generally lose the right to carry forward business losses and most capital losses to future years — a cost that's often larger than the fee itself for a trading or high-capex business.
What to do if you're going to miss it
If 21 October is going to pass without your audit filed, the priority is minimizing further delay, not avoiding it entirely. A belated audit report and return filed before 31 December 2026 stops the situation from getting worse and still gets your compliance record current.
Can the Section 271B fee be higher than Rs 1,50,000 in any case?
No — Rs 1,50,000 is a hard ceiling regardless of how large your turnover is. A business with Rs 50 crore turnover facing this fee would still be capped at Rs 1,50,000, not 0.5% of Rs 50 crore. This makes the fee proportionally much smaller for large businesses than for small ones near the Rs 1 crore threshold, where 0.5% of turnover can already approach the cap.
This article is for general information only. For your specific situation, consult a practicing CA.
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