Section 44AE Of The Income Tax Act: Eligibility And Calculating Taxable Income
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The government of India introduced a presumptive taxation scheme under the Income Tax Act to simplify various complications associated with calculating taxable business incomes of small businesses. Under Section 44AE of the Income Tax Act, this taxation scheme helps to estimate the income of taxpayers involved with leasing or hiring of goods carriages.
Let’s take a look at some of the major features and aspects of Section 44AE of the income tax act.
Table of contents
- Eligibility Criteria Under Section 44AE
- Applicability of Section 44AE
- Calculating Taxable Income Under Section 44AE
- Sample Illustrations on How Income is Calculated Under Section 44AE
- Calculating Income Under Section 44AE for Partnership Firms
- Exceptions Falling Under Section 44AE
- Allowances and Disallowances Under Section 44AE
- Latest Amendments in Section 44AE
- Treatment of Depreciation Under Section 44AE
- Final Word
- FAQs on Section 44AE
Eligibility Criteria Under Section 44AE
The two major requirements for eligibility include the following:
- As mentioned, under Section 44AE of the Income Tax Act, taxpayers dealing with the business of hiring, leasing or plying goods carriage vehicles can opt for the presumptive taxation scheme. Those involved with passenger-carrying vehicles are not eligible for this taxation policy under this section.
- The assessee should not own over ten goods carriage vehicles. Those with more than ten vehicles do not qualify for the benefits of presumptive taxation scheme under section 44AE.
Also Read: Tax On Income From Other Sources
Applicability of Section 44AE
The presumptive taxation scheme under section 44AE of the IT Act is applicable for various taxation categories. Different tax paying categories such as individuals, HUFs, registered companies, partnership firms are eligible to opt for this taxation scheme. Unlike the presumptive taxation scheme under section 44AD, there isn’t any restriction on the category of taxpayers.
Calculating Taxable Income Under Section 44AE
The income of taxpayers under Section 44AE is a total of the profit or gains that they earn from all good carriage vehicles in the preceding financial year. However, it is essential to note that goods carriage vehicles are usually of two types. These are light goods vehicles and heavy goods vehicles. Note that the calculation of income will vary based on the category of vehicles:
Heavy goods vehicles
An amount that is equal to Rs. 1,000 for each ton of unladen weight or gross vehicle weight for each month/part of a month in which the assessee owns the vehicle in the preceding year will be taxed. Alternatively, tax might be applicable on the amount that a taxpayer claims to get from the heavy goods vehicles during a particular financial year.
Vehicles other than heavy goods vehicles
For vehicles apart from heavy goods vehicles, tax would be levied on an amount that is equal to Rs. 7,500 for each month or part of a month for which a taxpayer owns such vehicles.
The taxpayer can, however, declare an amount that can be higher than a specified amount. Note that even if business owners have taken such vehicles on hire, they will be treated as owners under Section 44AE.
Sample Illustrations on How Income is Calculated Under Section 44AE
Light good vehicles:
Suppose Mr. Roy owns a business of leasing and hiring goods vehicles. In the FY 2021-22 he owned the following types of vehicles:
Vehicle type 1: 5 goods carriages from April 1 to March 31
Vehicle type 2: 3 goods carriages from May 13 to September 17
Calculation for income under section 44AE is as below:
For vehicle type 1,
No. of vehicles X no. of months X 7500 = 5 X 12 X 7500= Rs. 4,50,000
For vehicle type 2,
No. of vehicles X no. of months X 7500= 3 X 5 X 7500= Rs. 1,12,500
Total income = 4,50,000 + 1,12,500= Rs. 5,62,500
Heavy goods vehicle:
Suppose Mrs. Sinha runs a business of plying and hiring heavy goods vehicles. In the FY 2021-2022 she had the following types of vehicles:
Vehicle type 1: 3 goods vehicles of total weight of 15,000 kgs from April 1 to March 31
Vehicle type 2: 5 goods vehicles of total weight of 10,000 kgs from May 13 to September 17
Calculation for income under section 44AE will be:
For vehicle type 1,
No. of vehicles X no. of months X 1000 = 3 X 12 X 1000= Rs. 36,000
For vehicle type 2,
No. of vehicles X no. of months X 1000 = 5 X 5 X 1000= Rs. 25,000
Total income for that FY = 36,000 + 25,000= Rs. 61,000
Light and heavy goods vehicle:
Suppose Mr. Kapoor owns a business of plying, leasing and hiring of both light and heavy goods vehicle. During the FY 2021-22 he owned the following vehicles,
Vehicle type 1: 2 heavy goods having a gross weight of 11,000 kgs from April 1 to December 15
Vehicle type 2: 3 heavy goods vehicle of total weight of 15,000 kgs from June 3 to September 30
Vehicle type 3: 3 light goods carriages from September 1 to February 28
Calculation for income under Section 44AE will be as below:
For vehicle type 1,
No. of vehicles X no. of months X 1000= 2 X 9 X 1000= Rs. 18,000
For vehicle type 2,
No. of vehicles X no. of months X 1000= 3 X 4 X 1000= Rs. 12,000
For vehicle type 3,
No. of vehicles X no. of months X 7500= 3 X 6 X 7500= Rs. 1,35,000
Total income for that FY = 18,000+ 12,000+ 1,35,000 = Rs. 1,65,000
Calculating Income Under Section 44AE for Partnership Firms
The income computed as per Section 44AE is considered as the net income of a taxpayer, and no deduction is available on it.
However, when the taxpayer is a partnership firm, then the interest paid or remuneration to partners qualify as deductions as per provisions of Section 40(b). In other words, taxpayers can claim a deduction on their presumptive income and thereby reduce their tax liabilities.
Also Read: Section 194H Of Income Tax Act
Exceptions Falling Under Section 44AE
Taxpayers cannot claim any deduction under Section 44AE. However, Section 80C to 80U deals with tax deductions and exemptions. If you own a partnership business, you can claim deductions for the salaries and interests paid to the partners. You can also calculate the value of any asset used in the business, assuming that the deduction under section 32 can be claimed.
Allowances and Disallowances Under Section 44AE
A taxpayer falling under the presumptive income of Section 44AE is not allowed to claim any further deductions under Sections 30 to 38.
In cases of a partnership firm, you can claim deductions for interests and salaries paid to the partners under Section 44AE considered as income.
Latest Amendments in Section 44AE
As per the Finance Bill 2018, the following amendments are made in Section 44Ae for calculation:
· For heavy goods carriages of more than 12 metric tonne gross weight – Rs. 1000 per tonne per vehicle per month
· For light goods carriages of gross weight of less than 12 metric tonne- Rs. per vehicle per month
Treatment of Depreciation Under Section 44AE
Section 32 of the Income Tax Act allows all taxpayers deduction for depreciation on assets that they use for the purpose of profession or business. Taxpayers can avail tax deduction on the depreciation of the value of an asset to find the WDV (written-down value) as per provisions of Section 32 of the IT Act.
However, a taxpayer who is opting for the presumptive taxation scheme as per Section 44AE cannot avail deductions for depreciation.
Also Read: Unabsorbed Depreciation Under Section 32(2) Of The Income Tax Act
Final Word
Taxpayers with a business of plying or leasing goods carriage vehicles under the presumptive taxation system should have a clear idea about Section 44AE of the Income Tax Act. One can refer to the above-mentioned pointers to understand how to calculate taxable income under Section 44AE of income tax act.
FAQs on Section 44AE
Ans: If the transporter provides the PAN details to the deductor, then no TDS should be deducted. However, the deductor must provide these PAN details in the prescribed format to the income tax department.
Ans: A taxpayer choosing the presumptive taxation scheme under Section 44AE cannot avail deductions under Sections 30 to Section 38. All deductions available under these sections will be considered given, and the assessee won’t get any more deductions.
Ans: The government introduced a presumptive taxation scheme to simplify the complexities of taxation for small business owners. Those opting for this scheme do not have to maintain their books of accounts or comply with different tax audit rules and requirements.
Ans: No, this taxation scheme under Section 44AE is not mandatory for any assessee. This is an optional tax scheme. Taxpayers can choose to opt for it at their discretion. However, if you have a business of leasing or plying goods carriage vehicles, then this tax scheme can prove to be beneficial for you in many ways. It provides simplified taxation and a reduced burden of maintaining accounts.
Ans: Yes, if your actual income is lower than the specified amount under Section 44AE, you can declare it as the lower income. Let’s take an example. If the specified income under section 44AE is Rs. 4 lakh and your actual income stands at Rs. 2 lakh, you can declare the latter as your lower income.
No, an individual involved in leasing, hiring or plying goods carriage vehicles cannot opt for this taxation scheme under Section 44AE if they own more than ten vehicles. The primary requirement to be eligible for this scheme is that taxpayers cannot run the business with more than ten goods vehicles at any time of a financial year.
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This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
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