Section 44AE Of the Income Tax Act: Calculation of Taxable Income

What is Section 44AE?

Section 44AE of the Income Tax Act is Presumptive Taxation Scheme that the Income Tax Department introduced for small and medium enterprises involved in plying, leasing, or hiring goods carriages. Taxpayers opted for this scheme under Section 44AE are not required to maintain their books of accounts or get them audited.

What is the Applicability of Section 44AE?

Any small business engaged in the business of plying, hiring, or leasing goods carriage can apply for the presumptive income scheme under section 44AE. Partnership firms, HUFs and self employed individuals can also apply for section 44AE.

Unlike section 44AD, this section does not have any restriction as to which type of assessee can opt for this scheme.

What is the Eligibility Criteria for Section 44AE?

To qualify for the simplified tax calculations under Section 44AE of the Income Tax Act, you need to meet the following criteria:

• Business Type: Engage in the business of operating, hiring, or leasing goods carriage vehicles. Please be aware that individuals operating passenger-carrying vehicles do not qualify for this tax scheme.
• Number of Goods Carriage Vehicles: The business must own not more than 10 goods carriages at any point in a financial year.

How to Calculate Presumptive Income Under Section 44AE?

Upon fulfilling the eligibility criteria, you can opt for the presumptive income scheme under section 44AE. Given below is the process of how to calculate presumptive income under Section 44AE -

• The net taxable income is calculated at a monthly rate of Rs.7500 per vehicle, per month, or a part of the month during which you had the vehicle in the previous financial year.
• The calculation process is the same for both light goods vehicles (with a gross weight of 12MT or less) and heavy goods vehicles (with a gross weight of more than 10MT).
• Section 44AE prescribes that presumptive income will be calculated based on the time period during which you held the vehicle. For calculation purposes, a part of the month during which the vehicle was held will be considered a whole month.
• The calculated income will be the net income, and there will be no expense deduction for this amount.

What are the Exceptions Under Section 44AE?

According to Sections 30 to 38 of the Income Tax Act, choosing Presumptive Taxation means forfeiting the ability to claim deductions or exemptions. Deduction and the exemptions are accessible under Sections 80C to 80U. Under Section 44AE, taxable income is calculated as Rs 7,500 per vehicle per month.

If you're in a partnership firm, deductions for partner salaries and interests are claimable. However, depreciation deductions aren't applicable under Presumptive Taxation. Instead, you can calculate the written-down value of a business asset after accounting for the depreciation claim under Section 32 of the Income Tax Act.

If your business falls under Section 44AE’s limits, you no longer need to maintain account books or meet its requirements. However, if you have opted for Presumptive Taxation, you must pay tax in advance like other taxpayers.

How is Depreciation Treated Under Section 44AE?

You cannot claim any deduction under section 44AE of the Income Tax Act. This also applies to the deduction for depreciation. However, depreciation can be calculated and deducted from its total value. You can also find the written-down value of the block of assets according to section 32 of the Income Tax Act.

How to Declare Lower Income?

If the assessee earns less income than the income calculated under the presumptive income scheme, then such assessee can claim the lower income, i.e., the actual income, if the assessee mandatorily maintains the books of accounts and gets them audited.

How to Declare Higher Income?

If the actual income of the assessee is higher than that calculated under section 44AE of the Income Tax Act, they can declare such income at their own discretion.

So, if you are eligible to opt for a presumptive income scheme, you can skip the difficulty of maintaining books of accounts and getting them audited. If you are still feeling overwhelmed about reporting income under Section 44AE or deciding whether to opt for the Presumptive Taxation Scheme under 44AE or not, our expert online CAs are here to help. They specialize in accurately e-filing income tax returns. Book eCA now!