Section 44AE: India is a democratic country, where a salaried individual is liable to pay the income tax as per their eligibility and income tax brackets. Income tax is nothing but a self-assessed tax, which means that an assessee calculates his own taxes and reports them to the government in an income tax return.
Since the individuals calculate their own taxes, most of them took this as an advantage and started disclosing low income than the actual income while filing the ITR. And to overcome this particular issue, the Indian government introduced sections 44AE, 44AD, and 44ADA, which mandate minimum income disclosure for businesspeople. In this article, let’s understand everything about Section 44AE in detail. Read on to find more.
- What is Section 44AE?
- Who is Eligible for the Presumptive Taxation Scheme?
- Amount of Income Considered as PGPB
- Example Calculation on Income Tax Payment Under Section 44AE
- Exclusions Under Section 44AE
- Declaration of Lower Income
- FAQ’s on Section 44AEE Presumptive Taxation Scheme
Section 44AE comes under the Income Tax Act of 1961’s Presumptive Taxation Scheme. This Act forces the businesspeople to keep regular books of accounts and all their accounts audited from time to time. However, this presumptive taxation method allows the small taxpayers to avoid this time-consuming maintenance. Those who choose this option can calculate their income at a set rate and are exempt from accounting and auditing.
So basically, Section 44AE relates to a specific assessee who is in the business of plying, hiring, or leasing goods carriages; according to the provision, such income is charged under the head profit or gain from business or profession (PGBP) and on a presumption basis. Now let’s understand what is Profits and gains of business of plying, hiring or leasing goods carriages under Section 44AE and to whom does it apply.
Individuals falling under the following criteria is eligible for presumptive tax:
- Section 44AE is eligible for all entities such as individuals HUFs, firms or corporations who are involved in the business of plying, hiring, or leasing goods carriages.
- Entities must not own more than 10 goods carrier vehicles at any time in the financial year. If any assessed cross more than 10 vehicles then he/she cannot disclose the income under Section 44AE.
The officials of the income tax department have set a minimum amount of income that must be disclosed under this section and they are listed below:
- For Heavy Good Vehicles: For each month or part of a month, Rs. 1,000 per tonne of gross vehicle weight.
- For Non-Heavy Good Vehicles: For each month or part of a month, Rs. 7,500 per vehicle.
Those who choose the Section 44AE presumptive taxation plan can estimate their monthly income at Rs. 7,500 per vehicle possessed, regardless of whether it is a light goods vehicle or a heavy goods vehicle. Taxes must be paid in accordance with this calculation.
For example, let’s assume that Mr.Ram has owned a 9-tonne vehicle for 9 months and 15 days, then in December he purchased a 13-tonne vehicle that he did not use until the end of the financial year. Now the calculation of presumptive taxes under section 44AE would be as follows:
9 Tonnes Vehicle = 7500 x 10 = 75000
12 Tonnes Vehicle = 1000 x 13 x 4 = 52000
Total taxable income = 75000 + 52000 = 127000
If you observe this example, we have considered 9 tonnes vehicles as 10 instead of 9, because 9 months 15days is equal to 10 months. And though the heavy vehicle is not used, the tax is applicable to it.
As per Section 30 to 38 of the income tax act, any businessperson who chooses presumptive taxation cannot claim any tax exemptions or deductions. The ultimate taxable income would be calculated based on an income of Rs. 7,500 per car each month. However one can claim the exemptions and deductions under sections 80C through 80U are available.
If the taxpayer is a partnership firm, then deductions for salary and interest paid to partners can be claimed under the Income Tax Act’s rules. While depreciation is not deductible, the written-down value of any asset used in the firm can be determined assuming depreciation has been claimed and authorised under Section 32.
Individuals who choose presumptive taxation, on the other hand, must pay advance tax like everyone else.
If the assessee’s actual income is less than the income estimated under the Presumptive Scheme, the assessee can claim the lesser income as actual if he keeps his books of accounts in the manner prescribed by section 44AA and has them audited under section 44AB from time to time.
The frequently asked questions on profits and gains of business of plying, hiring or leasing goods carriages under Section 44AE are given below:
What is plying in income tax?
Transportation business includes plying which means that the transports used on daily basis. Public transportation and route buses are examples of vehicles that are used on a daily basis and comes under plying in income tax.
What is Section 44AE?
Section 44AE of the Income Tax Act, says that Small businesses involved in the business of plying, hiring, or leasing goods carriages with less than ten goods carrier vehicles can use the Presumptive taxation method to determine their taxable income for a given financial year.
What is the penalty for not getting the accounts audited as required by section 44AB?
Yes, the assessing officer will impose a penalty if a person who is required to comply with section 44AB fails to have his accounts audited in respect of any year or years as required by section 44AB or fails to provide such report as required by section 44AB.