If you run a small business, it is essential to understand the provisions of Section 44AE of the Income Tax Act 1961. The Presumptive Taxation Scheme was incorporated under the Income Tax Act 1961 to provide relief to small assessees or businesses from the complex calculation of taxable business income. Section 44AE has provisions designed to benefit small assessees engaged in the business of goods carriages.
See also: Presumptive tax scheme under Section 44AD of Income Tax Act
Section 44AE: Applicability
As per Section 44AE of the Income Tax Act, small businesses involved in plying, hiring or leasing goods carriages can adopt the Presumptive Taxation Scheme for determining their taxable income for a financial year. Those engaged in the passenger transport business are not eligible for the provisions.
Presumptive Taxation Scheme: Eligibility
Section 44AE provisions apply to all assessees, including individuals, Hindu Undivided Families (HUF) and partnership firms. It does not have specific restrictions, unlike section 44AD, as to the type of assessee who can choose the scheme.
Businesses engaged in plying, hiring or leasing goods carriages are eligible for the Presumptive Taxation Scheme. They must not own more than ten goods carriage vehicles at a time during the previous year.
Businesses opting for the scheme under Section 44AE are allowed to estimate their income at Rs. 7,500 per month per vehicle owned (whether light goods or heavy goods). Taxes must be paid based on this calculation. An assessee can declare an amount higher than that specified above. For example, Mr. Goyal owns eight heavy goods vehicles in a year. As per the Section 44AE provisions, he is eligible to adopt the scheme.
Computation of Income As Per Section 44AE
The computation of income is as follows:
Income per month per goods vehicle X No. of goods vehicles
i.e., Rs 7,500 X 8 = Rs 60,000 per month
Total income will be monthly income X No. of months in a year
i.e., Rs 60,000 X 12 = Rs. 7,20,000
In case the actual income is higher than Rs. 7,500, it must be specified in the Income Tax Return.
Exceptions Under Section 44AE
Those adopting the Presumptive Taxation Scheme cannot claim exemptions and deductions under Sections 30 to 38 of the Income Tax Act. That is, the income calculated above will be the assessee’s net income and no expenses shall be allowed as deductions. However, one can avail of exemptions and deductions under Sections 80C to 80U.
In a partnership firm, the remuneration (salary) or interest paid to partners can be claimed as a deduction under Section 40(B). While depreciation deduction is not available, the written-down value of an asset can be computed assuming that depreciation under Section 32 is claimed and allowed.
Assessees coming under the scope of Section 44AE need not follow Section 44AA and are exempted from maintaining account books, whereas an individual opting for presumptive taxation must pay advance tax.
Further, if the transporter furnishes PAN details, TDS will not be deducted from the amount paid to the transporter. As per the I-T act, an individual incurring expense above Rs. 20,000 cannot claim the expense as a deduction. However, it can be claimed if the payment to the receiver’s account is made using a cheque or a demand draft. If transporters incur huge expenses during long journeys, the maximum amount becomes Rs. 35,000.
Section 44AE: Declaration of lower income
If the assessee’s actual income is lower than the income computed under the scheme, he can claim the lower income, which is actual, given that the assessee maintains his books of accounts as specified under Section 44AA and get the books audited under Section 44AB.
Section 44AE: Declaration of higher income
If the assessee’s actual income is higher than the income calculated, the assessee must declare the higher income at his discretion.
FAQs
What is the presumptive taxation scheme under Section 44AE?
Section 44AE benefits small taxpayers as they are exempted from maintaining books of accounts if the turnover is less than Rs 2 crores (this was amended to Rs 5 crores subject to minimum criteria of digital transactions in Budget 2020). As per the presumptive income scheme, the taxpayers are allowed to estimate the minimum profits at the prescribed rate of the total turnover and are relieved to get the books of accounts audited.
Which weight is considered in 44AE?
Heavy goods vehicle refers to any goods carriage, the gross vehicle weight of which, or tractor or road-roller, the unladen weight of either, is above 12,000 kgs.
Harini is a content management professional with over 12 years of experience. She has contributed articles for various domains, including real estate, finance, health and travel insurance and e-governance. She has in-depth experience in writing well-researched articles on property trends, infrastructure, taxation, real estate projects and related topics. A Bachelor of Science with Honours in Physics, Harini prefers reading motivational books and keeping abreast of the latest developments in the real estate sector.
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