Section 44AE of Income Tax Act

To simplify the complicated procedures of calculating business tax filing for small businesses or small assessees, the Presumptive Taxation Scheme was incorporated under the Income Tax Act, 1961. The section 44AE under this scheme provides for a system for estimating the income of an assessee engaged in the business of hiring plying or leasing of goods carriages. The broad features of the section 44AE are explained in this article. Know more about the Presumptive Taxation Scheme

Applicability of Section 44AE

Section 44AE of Income tax act states that small business engaged in the business of plying, hiring or leasing goods carriages having not more than ten goods carriage vehicles, can adopt the Presumptive taxation scheme for ascertaining the taxable income for a particular financial year. The provisions of section 44AE are applicable to all sort of assessees which include individuals, Hindu Undivided Families (HUFs) and partnership firms. Unlike section 44AD, there are no specific restrictions as to what type of assessee can opt for the scheme.

Eligibility Criteria

As mentioned above, the business of hiring, plying or leasing goods carriage vehicles are eligible for Presumptive Taxation Scheme. So, there are only two important criteria for eligibility:

The business of hiring, plying and leasing goods carriage. If an assessee is engaged in a trade of passenger carrying vehicles or passenger transport cannot opt for such a scheme.
Owning not more than ten goods carriage vehicles. It means that an assessee owning more than ten such vehicles cannot opt for such a scheme.

Calculation of Income under Section 44AE

Income for eligible assessee opting for Presumptive Taxation Scheme under Section 44AE will be calculated on an estimated basis as described below:

The net total taxable incomes for such business will be calculated at the rate of Rs. Seven thousand five hundred per vehicle per month or part thereof the month during which the assessee owns the goods carriage in the previous year.
The assessee can declare a higher amount than that specified above.
The calculation will be irrespective of the fact whether it is a light goods vehicle (less than or equal to 12MT gross weight) or a heavy goods vehicle (more than 12MT gross weight).
It should be noted that part of the month will be considered AS full month to calculate income under the Section 44AE
The income computed above shall be the net income of the assessee, and no expense, in any case, shall be allowed as deduction.

Amendment as per the Finance Bill 2018

For the financial year, 2018 - 2019, the following provision for the calculation of taxable income under section 44AE shall be applicable.

For light goods vehicle (less than the gross weight of 12MT) Rs. 7,500 per vehicle per month (part shall be considered full month).
For heavy goods vehicle (more than 12 MT gross weight) – Rs. One thousand per tonne per vehicle per month (part will be considered full month).

Calculation of Presumptive Income for Partnership Firm

The income calculated under section 44AE is estimated and considered to be the net income of the assessee, and no deduction shall be granted. However, where the assessee is a partnership firm, the remuneration or interest paid to partners can be claimed as a deduction under section 40(b). In other words, separate deduction from the above calculated presumptive income can be claimed as a deduction.

Treatment of Depreciation under Section 44AE

As mentioned above, no deduction for depreciation, in any case, will be allowed from the estimated net income under section 44AE. However, depreciation can be calculated and deducted from the value of the asset to determine the WDV of the block of an asset as per the provisions of Income Tax Act under section 32.

Declaration of Lower Income

If the actual income of the assessee is lower than the income calculated under the Presumptive Scheme, the assessee can claim such lower income which is actual, provided the assessee mandatorily maintains his books of accounts as specified under section 44AA and get the books audited under section 44AB.

Declaration of Higher Income

If the actual income of the assessee is higher than the income calculated under the Presumptive Scheme, then the assessee can declare such higher income at his own discretion.