Section 44AE of the Income Tax Act, 1961

Section 44AE is a provision under the Income Tax Act, 1961 that prescribes the presumptive income scheme for certain small taxpayers who are engaged in the business of leasing, hiring, or plying of goods carriages.

The goal with Sec. 44AE of Income Tax Act is to:

Simplify tax compliance procedures
Relieve tedious bookkeeping duties
Provide a uniform method for calculating income

The taxpayers who choose this presumptive taxation income scheme are not required to keep their accounts books or have them audited.

Applicability of Presumptive Income Scheme Under Section 44AE

All taxpayer categories are subject to the presumptive income scheme u/s 44AE. This scheme is available to all taxpayers, including individuals, HUFs, partnership firms, and registered companies. There are simply no restrictions on any group of taxpayers, in contrast to other schemes like Section 44AD.

Who Can Apply?

If the taxpayer meets the conditions below, they can opt for the Presumptive Income Scheme and declare their income at a prescribed rate per month, irrespective of their actual income.

To be eligible for this taxation scheme, here are the criteria:

The taxpayer is engaged in the business of leasing, hiring or plying of goods carriages
The taxpayer must not own more than 10 goods carriages at any time during the particular fiscal year
He/she should not have opted for the presumptive taxation scheme under any other provision of the Income Tax Act

Deductions under Section 30 to Section 38 cannot be claimed by a taxpayer who is subjected to Section 44AE's presumptive taxation. However, in accordance with Section 40(B)'s rules, partnership firms are permitted to deduct the aforementioned costs.

Calculation of Income Under Section 44AE

Under Section 44AE, the income of taxpayers is a total of the gains they earn in the preceding financial year from all good carriage vehicles. These goods carriage vehicles are of two types, i.e. light goods vehicles and heavy goods vehicles.

‘Goods Vehicles’ refer to any vehicle designed or adapted for carrying goods or other materials. Whereas, ‘Heavy Goods Vehicles’ is a specific category of goods vehicles that have a gross vehicle weight of more than 12,000 kgs.

The calculation of income varies based on the vehicle type.

1. Heavy Goods Carrying Vehicles

For these vehicle types, the income is calculated in the following 2 ways:

Calculating tax on an amount equal to ₹1,000 for every ton of the gross weight or the monthly unladen weight for every month of the ownership of the vehicle
Calculating tax on the amount that the taxpayer earned during the last financial year

2. Light Goods Carrying Vehicles

For these vehicle types, an amount equal to ₹7,500 must be taxed every month. This is applicable to the vehicles that the taxpayer owned in the last financial year. Note that in case of partial ownership in a month, that part will be considered as a full month. Also, hired vehicles are also considered as owned vehicles.

To calculate the presumptive income under Section 44AE, the taxpayer needs to multiply the prescribed rate by the number of goods carriages owned by them during the financial year.

Here are the formulas:

1. Taxable income on Heavy Goods-Carrying vehicles = No. of Vehicles * No. of Months * 1000 * No. of Tons

2. Taxable income on Light Goods-Carrying Vehicles = No. of Vehicles * No. of Months * 7500

Here is an example to help you understand the calculation better:

Consider that a person has hired 4 heavy goods-carrying vehicles weighing 13,000 Kgs from 1st May, 2021, to 20th December, 2021. In addition, they have hired 3 light goods-carrying vehicles from 1st November, 2021 to 31st April, 2022.

Vehicle Type	Calculation of Taxable Income	Taxable Income
Heavy Goods-Carrying Vehicles	= 4 * 8 * 1,000 * 13	₹4,16,000
Light Goods-Carrying Vehicles	= 3 * 6 * 7,500	₹1,35,000
Total Taxable Income		₹5,19,000

Income Deductions Offered To Partnership Companies

The taxpayer can deduct salaries given to partners and workers as well as interest payments if the taxpayer is a partnership firm as defined under Section 44AE of the Income Tax Act. Section 40(B) explains the full extent of this taxation in detail.

Partnership firms can lower their taxable income and subsequent tax burden by taking advantage of these deductions.

Should TDS be deducted if the transporter provides PAN details?

The payer doesn’t have to deduct any TDS if the transporter provides his PAN details.

How is income calculated under Section 44AE?

Under Section 44AE, the limit for income is set at ₹7,500 per month per owned vehicle. If you earn more than ₹7,500, specify the same while filing income tax returns.

Who is covered under Section 44AE?

The provisions of Section 44AE of the Income Tax Act apply to anyone involved in the leasing, hiring or plying of goods carriages but only owns 10 or fewer carriage vehicles.

Is Section 44AE mandatory?

No, none of the taxpayers are required to use the tax scheme u/s 44AE. The taxpayers are allowed to choose whether or not to participate in this programme.

Section 44AE offers a few advantages, including streamlined taxation, maintenance relief, and audits of the accounts books. But it also nullifies every deduction from Section 30 through Section 38. As a result, you have to choose after proper tax planning.

Can an individual choose the presumptive taxation plan u/s 44AE if they own more than ten goods vehicles?

The taxpayer must have a company that involves playing, leasing or hiring of goods carriages and must not own more than 10 goods vehicles at any given time throughout the fiscal year in order to qualify for the programme.

As a result, a taxpayer who possesses more than ten goods vehicles is ineligible to use the Section 44AE presumptive taxation scheme.

How is depreciation treated under Section 44AE?

One of the expenses that taxpayers cannot claim while opting for the Presumptive Income Scheme under Section 44AE is depreciation on goods carriages. This means that taxpayers are not allowed to claim depreciation, as the presumptive income rate under Section 44AE already considers depreciation.

Therefore, taxpayers opting for the Presumptive Income Scheme u/s 44AE need not calculate and claim depreciation on their goods carriages separately. The presumptive income rate already factors in depreciation at a predetermined rate based on the type of vehicle that the taxpayer owns.

Which ITR form should be used for Section 44AE?

Individuals and businesses with income under Section 44AE must use the ITR-4 form. This form is for presumptive taxation under Sections 44AD, 44ADA, and 44AE, applicable to individuals, HUFs, and firms (excluding LLPs) with income not exceeding ₹50 lakh.

What is Section 44AE of the Income Tax Act?

Section 44AE of the Income Tax Act, 1961, offers a presumptive taxation scheme for SMEs involved in plying, leasing, or hiring goods carriages. It allows taxpayers to avoid maintaining books of accounts and audits.