Section 44AE Of The Income Tax Act: Eligibility And Calculating Taxable Income
Guide To Section 43B Of The Income Tax Act — Deduction On Actual Payments
18 January 2022
Section 194K Of The Income Tax Act: TDS On Income From Mutual Funds
18 January 2022The government 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 incomes 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.
Table of contents
About Eligibility Criteria
The two major requirements for eligibility include the following:
- As mentioned, under Section 44AE, 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 the presumptive taxation scheme u/s 44AE.
Also Read: Tax On Income From Other Sources
Applicability of Section 44AE
The presumptive taxation scheme u/s 44AE of the IT Act is applicable for various taxation categories. Different tax-paying categories such as individuals, HUFs, registered companies, and partnership firms are eligible to opt for this taxation scheme. Unlike the presumptive taxation scheme u/s 44AD, there isn’t any restriction on the category of taxpayers.
Calculating Taxable Income as per 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, the 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.
Calculating Income u/s 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 qualifies 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
Treatment of Depreciation as per 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 of a 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 of deductions for depreciation.
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.
Frequently Asked Questions
Ans: A taxpayer choosing the presumptive taxation scheme under Section 44AE cannot avail of 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 u/s 44AE is Rs. 4 lakh and your actual income stand at Rs. 2 lakh, you can declare the latter as your lower income.
Ans: 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 a business with more than ten goods vehicles at any time of a financial year.
Before you go…
- Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Install the Navi app now!
- Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to Rs. 5 crores. Install the Navi app now and get your instant in-principle approval right away! Interest rates starting at 6.46% p.a.
- How about an affordable health insurance policy 👨⚕️ starting at a monthly premium of just Rs. 241? Install the Navi app and get your policy in under 2 minutes
- Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
