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Presumptive Taxation Scheme – Section 44AE

Last Update Date : April 27, 2018

The essence of Mathematics is not to make simple things complicated, but to make complicated things simple. After all, complexity is your tough enemy.
And if it is an enemy, why would it pay to you? Therefore, taxation aims to make its provisions simpler and easier. To simplify the complicated procedures of calculating taxable business income for small businesses or small assessees, the Presumptive Taxation Scheme was incorporated under the Income Tax Act, 1961. Under this comprehensive guide by H&R Block, we will learn more about the provisions of section 44AE.

presumptive taxation scheme

Applicability of Section 44AE

Section 44AE states that small businesses engaged in the business of plying, hiring or leasing goods carriages having not more than 10 goods carriage vehicles, can adopt the Presumptive Taxation Scheme for determining the taxable income for a particular financial year. The provisions of section 44AE are applicable to all sort of assessees which include individuals, HUF, firm or a company. Unlike section 44AD, there are no specific restrictions as to what type of assessee can opt for the scheme.

Eligibility

The business of plying, hiring or leasing goods carriage vehicles are eligible for Presumptive Taxation Scheme provided the assessee do not owns more than 10 such carriage vehicles at any time during the previous year. So, there are only 2 important criteria for eligibility as mentioned above:

  1. Business of plying, hiring and leasing goods carriage. This means that if an assessee is engaged in the business of passenger carrying vehicles or passenger transport cannot opt for such scheme.
  2. Owning not more than 10 goods carriage vehicles. It means that a person or an assessee owning more than 10 such vehicles cannot opt for such scheme.

Calculation of Income under Presumptive Scheme

Income for such eligible assessee opting for Presumptive Taxation Scheme shall be calculated on estimated basis as explained below:

  • The net total taxable income for such business shall be calculated at the rate of ₹ 7,500/- per vehicle per month or part thereof during the year in which the vehicle is owned by the assessee.
  • However, the calculation above shall be irrespective of the fact whether it is a light goods vehicle (less than or equal to 12MT) or a heavy goods vehicle (more than 12MT).
  • Also, it should be noted that part of the month shall be considered full month for the purpose of calculating income under the said section.
  • The income calculated 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)

From 1st April, 2018, i.e. for financial year 18-19, the following provision for the calculation of taxable income under section 44AE shall be applicable.

  • For light goods vehicle (less than or equal to gross weight of 12MT) – ₹ 7,500/- per vehicle per month (part thereof shall be considered full month).
  • For heavy goods vehicle (more than gross weight of 12MT) – ₹ 1,000/- per tonne per vehicle per month (part thereof shall be considered full month).

Illustration

Situation: Mr. XYZ is engaged in the business of plying, hiring and leasing goods carriage vehicles. He owns 4 light goods vehicles and 5 heavy goods vehicles for the purpose of transportation of goods.

Computation of Income as per Section 44AE
Income per month per goods vehicle 7500
(x) number of vehicles 9
Total income per month 67,500
(x) number of months the vehicles were owned 12
Total income for the year u/s 44AE 8,10,000

Note: For the purpose of calculation above, the fact whether the vehicle is light or heavy has been ignored as specified under the provisions.
It is also assumed that the vehicles have been owned by Mr. XYZ throughout the year.

Calculation of Presumptive Income in case of Partnership

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 deduction under section 40(b). In other words, separate deduction from the above calculated presumptive income can be claimed as deduction.

Treatment of Depreciation under Section 44AE

As explained above, no deduction for depreciation in any case shall 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 asset as per the provisions of Income Tax Act under section 32.

Maintenance of Books of Accounts under Presumptive Scheme

As under the Act, the net total income of the assessee is calculated on estimated basis, the books of accounts of the business are not mandatory to be maintained. A great relief under such provision is being provided to the small businesses. It should also be noted that the books of accounts are also not required to be audited by a Chartered Accountant.

Declaration of Lower Income

If the actual income of the assessee is lower than the income calculated under the Presumptive Scheme, in that case, 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.

Other Important Points to be considered

  • ITR 4S shall be filed for declaring income under this section before due date.
  • Vehicle owned for the part of the month shall be considered as full month.
  • TDS is not required to be deducted if the PAN card details are furnished by the assessee.
  • The provisions under the section shall be applicable on all the vehicles and the assessee cannot opt the scheme for some of them.
  • The date for the purpose of calculating income under the section shall be the date on which the asset is purchased and not the date on which it is put to use.
  • Advance Tax payment is mandatory even if the assessee opts for the Presumptive Scheme. No relaxation has been provided and the assessee is liable to pay advance tax.
  • For individual availing goods transport service: If an individual incurs an expense of more than ₹ 35,000 in cash for availing goods transport services, he cannot claim such expense as deduction to his income.

However, if the expense is incurred by the way of a demand draft or a cheque beyond the limit of ₹ 35,000 can be claimed as deduction.
It should be noted that this limit of ₹ 35,000 is applicable to individuals availing the services. The assessee operating the business cannot claim deduction for expenses in cash beyond the limit of ₹ 20,000.

As rightly said, your worst enemy can be your best friend, the scheme of presumptive tax is a sorted form of complex provisions. Section 44AE provides the simpler and easier ways of calculating income arising from the business of plying, hiring and leasing goods carriages and also provides relief form maintenance of books of accounts and getting it audited. We, at H&R Block can make it happen for you. Reach out our experts at H&R Block, India.

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