In this article we shall take a look at Section 44AE of the Income Tax Act and all the various requirements associated with it.
The Presumptive Taxation Scheme was established in the Income Tax Act of 1961 to simplify the difficult methods of computing taxable business income for small enterprises or small assessees. This scheme’s section 44AE establishes a system for calculating the income of an assessee engaged in the business of renting, plying, or leasing goods carriages. This page explains the main characteristics of Section 44AE Of Income Tax Act.
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 the books of accounts and getting their accounts audited by the authorities.
Section 44AE has been designed to give relief to a specific section of taxpayers. These are transport operators who own not more than 10 goods carriages at any time during the financial year. They can also be the ones who are engaged in the business of leasing or plying of such goods carriages.
In this article, we are going to learn the specifics of Section 44AE of the Income-tax act and its requirements.
Who Is Eligible For This Scheme Under Section 44AE Of Income Tax Act?
The following persons are eligible the provisions for Section 44AE:
- An individual
- Hindu Undivided Family
- Firm
- Company
A person who is engaged in the business of plying, hiring or leasing goods carriages will adopt this scheme. The primary criteria is that they must not own more than 10 goods vehicles at any time during the year. Some other rules with regard to the form are:
- Part of the month is calculated as a full month.
- 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.
- Heavy goods vehicles are those vehicles that weigh more than 12 thousand Kilograms.
Which Businesses are Eligible for Presumptive Taxation Scheme?
The Presumptive Taxation Scheme is available for businesses associated with the leasing of goods carriages, as well as those involved in plying or hiring such vehicles. To be eligible for this scheme, you should own fewer than ten goods-carrying vehicles at any point during the previous financial year. Therefore, businesses in the passenger transport sector with more than 10 vehicles within the previous financial year are not eligible for this scheme.
For example, if Mr. Anand owned 8 goods vehicles during the 2022-2023 financial year and is engaged in the leasing of goods carriages business, he would qualify for the Presumptive Taxation Scheme under Section 44AE.
How to Calculate Presumptive Income Under Section 44AE?
If you meet the eligibility criteria, you can choose the Presumptive Taxation option under Section 44AE.
Here’s how the income is calculated under this scheme:
- Your net taxable income is determined at a monthly rate of Rs 7,500 per vehicle per month or any part of a month in which you owned the vehicle in the preceding financial year.
- The calculation process remains the same for both light goods vehicles (with a gross weight of less than or equal to 12MT) and heavy goods vehicles (with more than 12MT gross weight).
- The income calculated in this manner represents your net income, and no deductions for expenses are allowed.
Note – In line with Section 44AE, even if you owned the goods carriage for a few days in a month it is still considered for income calculation.
What are the Exceptions under Section 44AE Of Income Tax Act?
Under Sections 30 to 38 of the Income Tax Act, you are not eligible to claim any deductions or exemptions on income tax if you have opted for Presumptive Taxation. These deductions and exemptions are typically available under Sections 80C to 80U. In the context of Section 44AE, the net taxable income is calculated at a rate of Rs 7,500 for each vehicle per month.
However, if your business operates as a partnership firm, you can claim deductions for interest and salaries paid to the partners. It’s essential to note that you cannot avail of depreciation deductions under Presumptive Taxation. In this case, you can compute the written-down value of a business asset after considering the depreciation allowance as per Section 32 of the Income Tax Act.
If your business falls within the limits defined by Section 44AE, you are no longer required to maintain account books or meet the typical accounting requirements. Instead, if you have opted for Presumptive Taxation, you need to make advance tax payments, similar to other taxpayers.
Who Is Not Eligible For Presumptive Taxation Scheme U/S 44AE?
Any transport operator who holds more than ten goods vehicles at any time during the year is not eligible and cannot take advantage of this scheme.
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.
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.
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.
It must however be noted that:
- Part of the month is calculated as a full month.
- 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.
- Heavy goods vehicles are those vehicles that weigh more than 12 thousand Kilograms.
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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 under two conditions. They are:
- the account of remuneration and
- 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.
The business owners need not maintain books of accounts under Section 44AA.
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
- 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 a period to be a full month.
- Any class of taxpayer may file a tax return on deemed income per vehicle. (i.e., individual/Company Partnership/ Firm/ LLP/HUF, etc.)
- For income disclosed under this section, ITR 4 would be applicable.
- The law doesn’t allow the taxpayer to claim expenses, depreciation or other expense from the deemed income calculated.
- For companies that report revenue pursuant to Article 44AE, Section 44AA and Section 44AB shall not apply.
- 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.
- 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.
- 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
When the transporter provides the PAN card details, the government does not deduct the amount payable to the carrier from TDS.
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.
FAQ’s
Why was Section 44AE introduced in the Income Tax Act?
Section 44AE was introduced in the Income Tax Act to provide a simplified method for calculating the income of small transporters who own not more than ten goods carriages.
How does Section 44AE benefit small transporters?
Small transporters benefit from Section 44AE as it offers a simpler way of computing income tax liability and reduces compliance costs.
What types of vehicles are excluded from the purview of Section 44AE?
Vehicles that are excluded from the purview of Section 44AE include passenger vehicles, vehicles used for hire or reward, and vehicles that are used for carrying goods that are not owned by the taxpayer.
Are there any specific record-keeping requirements under Section 44AE?
There are specific record-keeping requirements under Section 44AE. Taxpayers must maintain a logbook of the goods carried, the number of kilometres travelled and the amount charged for each trip.
Can a taxpayer opt for Section 44AE voluntarily in any assessment year?
Taxpayers can opt for Section 44AE voluntarily in any assessment year if they meet the eligibility criteria.
How often can a taxpayer switch between the regular method and the presumptive taxation scheme under Section 44AE?
Taxpayers can switch between the regular method and the presumptive taxation scheme under Section 44AE once in five years.
What happens if the actual income exceeds the presumptive income under Section 44AE?
If the actual income exceeds the presumptive income under Section 44AE, the taxpayer must declare his actual income and pay tax on it.
How are repairs and maintenance charges treated under Section 44AE?
Repairs and maintenance charges are included in the presumptive income under Section 44AE.
Is it mandatory for all transporters to adopt the presumptive taxation scheme under Section 44AE?
It is not mandatory for all transporters to adopt the presumptive taxation scheme under Section 44AE. Only small transporters who meet the eligibility criteria can voluntarily opt for it.
How is Section 44AE different from other presumptive taxation schemes like Section 44AD and 44ADA?
Section 44AE is different from other presumptive taxation schemes like Section 44AD and 44ADA as it applies only to small transporters who own not more than ten goods carriages.
Are there penalties for non-compliance or misrepresentation under Section 44AE?
There are penalties for non-compliance or misrepresentation under Section 44AE. If a taxpayer is guilty of misreporting income he will be fined a penalty of 200% of the tax sought to be evaded.
Conclusion:
Taxation is a vast subject and not unnecessarily so. The diaspora of taxpayers in this country is diverse in so many different ways. Different people, belonging to different demographics and different geographies conduct business taking the immediately surrounding factors into account. So the taxation system has to take all those factors into consideration. Besides that, the government also has to identify key business sectors such as transportation and promote them for the growth of the economy. So making common sense out of these taxes is not always possible. This is why it is advisable to consult with a professional tax expert in order to ensure that you get a better understanding of where you fit as far as taxation is concerned and what are the various benefits you can avail under the system depending on the nature and the volume of your business. If you have any further queries with regards to taxation or require any assistance, get in touch with us and our team of experts will be happy to help you with your requirements.
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