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Section 44AE of the Income Tax Act, 1961: Presumptive Taxation Scheme

Narendra Kumar

| Updated: Mar 04, 2019 | Category: Taxation

Section 44AE


To simplify the process of the small businesses to carry on their business hassle-free, the Presumptive taxation Scheme was introduced under the Income Tax Act, 1961 which included two schemes viz: Section 44AD and Section 44AE. An Assessee opting this scheme is not required to maintain the books of accounts also they get an exemption from getting their accounts audited. In this topic, we will cover 10 important points which must be considered while opting Presumptive taxation Scheme under section 44AE of the Income Tax Act, 1961

This Scheme basically covers the small businesses or assessees who are engaged in the business of transportation i.e. Business involved in a goods carriage.

Applicability of Section 44AE

Section 44AE is applicable to small businesses carrying on the business of plying, hiring, or engaged in leasing business of goods carriage that are having not more than 10 goods carriage vehicles. These businesses are free to adopt the Presumptive Taxation Scheme for a particular financial year to derive their taxable income[1]. The provisions of this scheme are applicable to an individual.

Eligibility

The assessee carrying on the business as per Section 44Ae under the presumptive taxation scheme provided he owns not more than 10 carriage vehicles at any time during the relevant financial year has to fulfill the following two eligibility criteria’s:

  1. Carrying on the business of plying, hiring and leasing of goods carriage except the assessee carrying on the business of carrying passengers or passenger transport.
  • Maintaining not more than 10 goods carriage vehicles. This means this scheme can be opted by the assessee having less than 10 or having 10 vehicles.

How to calculate Taxable Income?

Eligible assessees who opt for presumptive taxation scheme shall be calculated as explained below with an example:

  1. The taxable income (net) shall be calculated at the rate of Rs.7500 per vehicle per month or part thereof during the financial year for which the vehicle is owned.
  2. However, this calculation above doe not depend on whether the vehicle is a light goods vehicle (less than or equal to 12MT) or Heavy Goods Vehicle (more than 12MT).
  3. Also, note that part of the month will be considered as a full month for the purpose of calculation of taxable income.
  4. The assessee opting for income tax calculated under presumptive taxation scheme under section 44AE shall not be eligible to claim any deduction of expenses.

Latest Amendment

As per the latest amendment on 1St April 2018, the provision for calculating the taxable income has changed which states:

  1. For Light Goods Vehicle (LGV): Less than or equal to 12MT – Rs.7500 per vehicle per month (part of the month will be considered as a full month)
  2. For Heavy Goods Vehicles (HGV): More than gross weight 12MT) – Rs 1000 per tonne vehicle per month (part of the month will be considered as a full month)

For Example:

Mr. ABC is engaged in the business of hiring plying or leasing goods carriage vehicles. He has 3 Light Goods Vehicles and 5 Heavy Goods Vehicles.

Assumptions

  1. The calculation of the taxable income is made as per the latest amendment
  2. Vehicles are owned throughout the year.
Computation of Taxable income under section 44AE
  Light Goods Vehicles Heavy Goods Vehicle
Income per month 7500 1000
No of Vehicles 3 5
Total Income per month 22500 5000
No of Months 12 12
Total taxable Income under Section 44AE 270000 60000
Total Income Rs.330000

What are the provisions which the assessee is required to follow if he opts for a presumptive taxation scheme under section 44AE?

1. Provisions related to Expenses or allowance deduction:

Net taxable income calculated above as per the example shall be considered at the net income under the head business. No other deduction will be allowed under section 30 to 38 which also includes unabsorbed loss and unabsorbed depreciation.

2. Provisions related to Partnership Firm:

There is an exception provided to the partnership firm which states that an assessment which is a partnership firm that has opted for presumptive taxation scheme can claim a deduction of remuneration and interest to its partners as per the limits specified under Section 40(b). It means that after the computation of net income under the presumptive taxation scheme shall be allowed deduction of remuneration and interest to partners as per section 40(b).

Note: Also, Income computed as per the above scheme, no disallowance will be made under section 40, 40A and 43B.

3. Provisions relating to Depreciation and unabsorbed depreciation

As explained above the assessee opted presumptive taxation scheme is not allowed to claim a deduction for any kind of depreciation or unabsorbed depreciation.

However, for calculating the WDV of the block of asset depreciation may be calculated as per provisions of Section 32 of the Income Tax Act, 1961.

Read our article:All Types of Income Tax Return Filing In India

Maintenance of Books of Account

The Presumptive Taxation Scheme was introduced to provide benefits to small businesses from hassle-free tax compliances. Under the Act, if the Net Taxable Income is calculated as per this scheme, they are not required to maintain the books of accounts. It should also be noted it is not required to get its accounts audited.

Declaration of Lower Income

As per this provision, the assessee has an option to show income which is the actual, income and which is lower than the income computed under presumptive basis. However, in such a case it is mandatorily required to get its accounts audited by a Chartered Accountant as per S4ection 44AA and Section 44AB.

Also note if the income on the actual basis is higher than calculated on a presumptive basis, it is at the discretion of the assessee of which income he wants to consider.

Other points to be kept in mind

  1. The ITR 4 Return Form is required to be filed in case the person is opting for the Presumptive Taxation Scheme under Section 44AE.
  2. Vehicles, whether owned for the past month, will be considered as a full month for calculating the taxable income.
  3. TDS is not required to be deducted if PAN is furnished by the assessee.
  4. For the purpose of calculating the taxable income, the date of purchase of the vehicle shall be taken into account and not the date of put in use.
  5. Advance Tax compliance is also required to be done by the assessee opting for Presumptive Taxation.
  6. For Individuals who are vailing the services of Goods Transport Agency incurs an expense greater than Rs. 35000 in cash he cannot claim such expenses as a deduction. However, he can claim the deduction if the payment is made through cheque or demand draft.

Conclusion

After going through the various provisions of Section 44AE we have come through a conclusion that it provides a simple and easy way to the assessee or small businesses who are carrying on the business of plying or hiring or leasing business to calculate their taxable income hassle-free with less compliance and also, they a big relief from maintenance of books of accounts and audit.

For more information and any clarification, you can contact our Legal Expert @https://enterslice.com.

Read our article:Salaried? You need to file Income Tax Return!

Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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