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