Section 44AE of Income Tax Act: Presumptive Taxation for Transporters

Last Updated at: October 06, 2020
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All you need to know about Section 44AE of the Income tax Act
The trucking industry has sought a waiver of presumptive tax for small fleet owners for four years beginning 2019-20 as the industry reels under lockdown due to the COVID-19  outbreak. All India Transporters’ Welfare Association (AITWA), has urged the Finance Ministry to consider the waiver of presumptive taxation under Section 44AE of the Income Tax Act. It believes that small truck owners will get wiped out paying EMIs without any business.

 

Section 44AE is covered under the Presumptive Taxation Scheme of Income-tax act, 1961. The presumptive taxation was introduced to give relief to small business or profession from the difficulty of maintaining books of accounts and getting their accounts audited.

Presumptive Taxation Scheme handles three different Sections – Section 44AD, Section 44ADA & Section 44AE

Any business person adopting presumptive taxation can declare income at a prescribed rate. They can get complete relief from maintaining books of account and getting their accounts audited.

In this blog, we are going to learn the specifics of Section 44AE of the Income-tax act.

The law designed Section 44AE to give relief to taxpayers. They can be those who own not more than 10 goods carriages at any time during the previous year. They can also be the ones who are engaged in the business of leasing or plying of such goods carriages.

Who is eligible for this Scheme under Section 44AE?

The following persons are eligible the provisions for Section 44AE:

  1.     An individual
  2.     Hindu Undivided Family
  3.     Firm
  4.     Company

A person who is engaged in the business of plying, hiring or leasing goods carriages will adopt this scheme. They must not own more than 10 goods vehicles at any time during the year.

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    1. Part of the month is calculated as a full month.
    2. If the income is higher than the presumptive rate Rs.1000 (Heavy Vehicles) / Rs.7500 (Other than heavy vehicles), then such income can be declared.
    3. Heavy goods vehicles are those vehicles that weigh more than 12 thousand Kilograms.
      1. Who is not eligible for presumptive taxation scheme u/s 44AE?

      The person who holds more than ten goods vehicles at any time during the year is not eligible and cannot take advantage of this scheme.

      1. How to calculate presumptive taxation under Section 44AE?

      If a person is willing to opt for the presumptive taxation scheme of Section 44AE, the income will be computed on an estimated basis.

      1. How tax is calculated on a heavy goods vehicle?

      Tax is calculated at the rate of Rs 1000 / ton of total vehicle weight for every month or part of the month during which the vehicle is owned by taxpayers.

      1. How tax is calculated on vehicles other than heavy goods vehicle?

      Income will be calculated at the rate Rs 7500 for every month or part of the month during which the goods vehicles are owned by the taxpayer. 

      Note:

      1. Part of the month is calculated as a full month.
      2. If the income is higher than the presumptive rate Rs.1000 (Heavy Vehicles) / Rs.7500 (Other than heavy vehicles), then such income can be declared.
      3. Heavy goods vehicles are those vehicles that weigh more than 12 thousand Kilograms.

Can taxpayers claim deductions as per Section 44AE?

In the case of a person opting for the presumptive taxation scheme of Section 44AE, the provisions of deductions will not apply and income will be calculated at a presumptive rate.

For partnership firms: the owners can claim deduction on two bases. They are:

  1. the account of remuneration and
  2. interest paid to partners.

No separate deduction is allowed on the account of depreciation. However, written down value (WDV) of any asset used in such business shall be claimed and has been actually allowed.

But, every assessee can claim deductions under Chapter VI-A.

Maintaining books of accounts:

A person engaged in business/profession has to maintain books of accounts of his business as per section 44AA.

But, if a person declares income at a presumptive rate, then the provision relating to the maintenance of books of account will not apply.

  1.   The business owners need not maintain books of accounts under Section 44AA.
  2.   The business owners need not audit their accounts under Section 44AB.

If a person opts for presumptive tax under Section 44AE, then they are liable to pay advance tax from the business covered under Section 44AE.

And, if a person declares income at a lower rate than the prescribed one, then they need to maintain books of accounts. They audit the books as per Section 44AA and Section 44AB respectively.

Other Provisions of Section 44AE:

    1. There are cases where the hauliers don’t own a vehicle for a whole month. They might only own it for a specific time. Here, the law considers such period to be a full month.
  1. Any class of taxpayer may file a tax return on deemed income per vehicle. (i.e., individual/Company Partnership/ Firm/ LLP/HUF, etc.)
  2. For income disclosed under this section, ITR 4 would be applicable.
  3. The law doesn’t allow the taxpayer to claim expenses, depreciation or other expense from the deemed income calculated.
  4. For companies that report revenue pursuant to Article 44AE, Section 44AA and Section 44AB shall not apply.
  5. The written value of any asset used for business purposes whose profit is taxable under either of the presumptive schemes shall be measured as though the taxpayer had requested and was legally entitled to the depreciation deduction. This is according to the rates prescribed by the income tax rules for each of the applicable assessment years for which the income is reported under presumptive income.
  6. The provisions of Section 44AE apply only to taxpayers in the leasing sector or in the procurement of products. They do not extend to a taxpayer who has leased such a vehicle. In other words, a person who owns a vehicle may disclose the income. Whereas, the individual with rented vehicle shall not disclose the income under this section.
  7. The taxpayer may disclose more revenue than this section specifies. In some cases, the taxpayers disclose income below what the section has set out. Here, they must comply with section 44AA and Section 44AB provisions.

Other related provisions applicable on hauliers or transporters:

  1. When the transporter provides the PAN card details, the government does not deduct the amount payable to the carrier from TDS.
  2. Under the current provisions of the Income Tax Act, if a taxpayer incurs any expenditure in respect of which payment exceeding Rs.20,000 is made other than by the draft account payee cheque or bank account payee, such expenditure shall not be allowed as a deduction. During special circumstances, the law increases the payment limit for transporters who incur long-distance traffic expenditures. The payment limit is now at Rs. 35 000/-, whereas, it was Rs. 20 000/- before. This is applicable to all transactions other than a cheque payee or a bank draft payer account.

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Section 44AE of Income Tax Act: Presumptive Taxation for Transporters

12154
The trucking industry has sought a waiver of presumptive tax for small fleet owners for four years beginning 2019-20 as the industry reels under lockdown due to the COVID-19  outbreak. All India Transporters’ Welfare Association (AITWA), has urged the Finance Ministry to consider the waiver of presumptive taxation under Section 44AE of the Income Tax Act. It believes that small truck owners will get wiped out paying EMIs without any business.

 

Section 44AE is covered under the Presumptive Taxation Scheme of Income-tax act, 1961. The presumptive taxation was introduced to give relief to small business or profession from the difficulty of maintaining books of accounts and getting their accounts audited.

Presumptive Taxation Scheme handles three different Sections – Section 44AD, Section 44ADA & Section 44AE

Any business person adopting presumptive taxation can declare income at a prescribed rate. They can get complete relief from maintaining books of account and getting their accounts audited.

In this blog, we are going to learn the specifics of Section 44AE of the Income-tax act.

The law designed Section 44AE to give relief to taxpayers. They can be those who own not more than 10 goods carriages at any time during the previous year. They can also be the ones who are engaged in the business of leasing or plying of such goods carriages.

Who is eligible for this Scheme under Section 44AE?

The following persons are eligible the provisions for Section 44AE:

  1.     An individual
  2.     Hindu Undivided Family
  3.     Firm
  4.     Company

A person who is engaged in the business of plying, hiring or leasing goods carriages will adopt this scheme. They must not own more than 10 goods vehicles at any time during the year.

Get free legal advice now

    1. Part of the month is calculated as a full month.
    2. If the income is higher than the presumptive rate Rs.1000 (Heavy Vehicles) / Rs.7500 (Other than heavy vehicles), then such income can be declared.
    3. Heavy goods vehicles are those vehicles that weigh more than 12 thousand Kilograms.
      1. Who is not eligible for presumptive taxation scheme u/s 44AE?

      The person who holds more than ten goods vehicles at any time during the year is not eligible and cannot take advantage of this scheme.

      1. How to calculate presumptive taxation under Section 44AE?

      If a person is willing to opt for the presumptive taxation scheme of Section 44AE, the income will be computed on an estimated basis.

      1. How tax is calculated on a heavy goods vehicle?

      Tax is calculated at the rate of Rs 1000 / ton of total vehicle weight for every month or part of the month during which the vehicle is owned by taxpayers.

      1. How tax is calculated on vehicles other than heavy goods vehicle?

      Income will be calculated at the rate Rs 7500 for every month or part of the month during which the goods vehicles are owned by the taxpayer. 

      Note:

      1. Part of the month is calculated as a full month.
      2. If the income is higher than the presumptive rate Rs.1000 (Heavy Vehicles) / Rs.7500 (Other than heavy vehicles), then such income can be declared.
      3. Heavy goods vehicles are those vehicles that weigh more than 12 thousand Kilograms.

Can taxpayers claim deductions as per Section 44AE?

In the case of a person opting for the presumptive taxation scheme of Section 44AE, the provisions of deductions will not apply and income will be calculated at a presumptive rate.

For partnership firms: the owners can claim deduction on two bases. They are:

  1. the account of remuneration and
  2. interest paid to partners.

No separate deduction is allowed on the account of depreciation. However, written down value (WDV) of any asset used in such business shall be claimed and has been actually allowed.

But, every assessee can claim deductions under Chapter VI-A.

Maintaining books of accounts:

A person engaged in business/profession has to maintain books of accounts of his business as per section 44AA.

But, if a person declares income at a presumptive rate, then the provision relating to the maintenance of books of account will not apply.

  1.   The business owners need not maintain books of accounts under Section 44AA.
  2.   The business owners need not audit their accounts under Section 44AB.

If a person opts for presumptive tax under Section 44AE, then they are liable to pay advance tax from the business covered under Section 44AE.

And, if a person declares income at a lower rate than the prescribed one, then they need to maintain books of accounts. They audit the books as per Section 44AA and Section 44AB respectively.

Other Provisions of Section 44AE:

    1. There are cases where the hauliers don’t own a vehicle for a whole month. They might only own it for a specific time. Here, the law considers such period to be a full month.
  1. Any class of taxpayer may file a tax return on deemed income per vehicle. (i.e., individual/Company Partnership/ Firm/ LLP/HUF, etc.)
  2. For income disclosed under this section, ITR 4 would be applicable.
  3. The law doesn’t allow the taxpayer to claim expenses, depreciation or other expense from the deemed income calculated.
  4. For companies that report revenue pursuant to Article 44AE, Section 44AA and Section 44AB shall not apply.
  5. The written value of any asset used for business purposes whose profit is taxable under either of the presumptive schemes shall be measured as though the taxpayer had requested and was legally entitled to the depreciation deduction. This is according to the rates prescribed by the income tax rules for each of the applicable assessment years for which the income is reported under presumptive income.
  6. The provisions of Section 44AE apply only to taxpayers in the leasing sector or in the procurement of products. They do not extend to a taxpayer who has leased such a vehicle. In other words, a person who owns a vehicle may disclose the income. Whereas, the individual with rented vehicle shall not disclose the income under this section.
  7. The taxpayer may disclose more revenue than this section specifies. In some cases, the taxpayers disclose income below what the section has set out. Here, they must comply with section 44AA and Section 44AB provisions.

Other related provisions applicable on hauliers or transporters:

  1. When the transporter provides the PAN card details, the government does not deduct the amount payable to the carrier from TDS.
  2. Under the current provisions of the Income Tax Act, if a taxpayer incurs any expenditure in respect of which payment exceeding Rs.20,000 is made other than by the draft account payee cheque or bank account payee, such expenditure shall not be allowed as a deduction. During special circumstances, the law increases the payment limit for transporters who incur long-distance traffic expenditures. The payment limit is now at Rs. 35 000/-, whereas, it was Rs. 20 000/- before. This is applicable to all transactions other than a cheque payee or a bank draft payer account.

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