What is Section 44AE of Income Tax Act?

Section 44AE is a provision under the Indian 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 is to simplify tax compliance procedures, relieve tedious bookkeeping duties, and 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.

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.

Eligibility Criteria

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, 

• 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.

1. Definition

• Goods Vehicles 

According to Indian Law, "Goods Vehicles" refer to any vehicle that is designed or adapted for carrying goods or any material, including livestock, agricultural produce, and other commodities. Goods vehicles can be of various types, including lorries, vans, trucks, and trailers, etc.

• Heavy Goods Vehicle and

Whereas, Heavy Goods Vehicles is a specific category of goods vehicles that have a gross vehicle weight of more than 12,000 kgs. These vehicles are used for the transportation of heavy materials or goods over long distances.

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. 

 

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

 

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

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.

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 same in greater detail. 

 

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

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 cannot claim any depreciation on the goods carriages owned by them, as the presumptive income rate under Section 44AE already takes into account 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 owned.

With the implementation of various presumptive taxation methods, the IT Department seeks to simplify the tax process of small enterprises. The presumptive scheme of 44AE Section offers relief to the assessees, just like any other presumptive taxation plans.

 

Also, the taxpayer who chooses the tax scheme need not keep accounts books or comply with the requirements of tax audit. Such assessees are not subject to the section 44AA requirement for maintaining accounts books. Likewise, these taxpayers are not covered by section 44AB, which deals with the audit of accounts books.