All about Section 44AE of Income Tax Act, 1961

To give relief to small assessees, the Income-tax Law has incorporated a simple scheme commonly known as Presumptive Taxation Scheme. There are three schemes viz. the scheme of section 44AD, Section 44ADA  and section 44AE. An assessee adopting these provisions is not required to maintain the regular books of account and also exempt from getting the accounts audited. In this advance learning we will cover the provisions of the presumptive taxation scheme provided in section 44AE.

The scheme of section 44AE is designed to give relief to small assessees engaged in the business of goods carriage. The detailed provisions in this regard are as follows:

To whom the provisions of section 44AE are applicable?

Applicability of the scheme

The provisions of section 44AE are applicable to every person (i.e., an individual, HUF, firm, company, etc.).

Unlike section 44AD, in case of section 44AE there is no restriction on which categories of assessees can opt for the scheme.. All sorts of assessees can opt from this scheme.

Which business is eligible for the purpose of scheme prescribed under section 44AE?

Eligible business

The presumptive taxation scheme under these provisions can be opted for by an assessee who is engaged in the business of plying, hiring or leasing goods carriages and does not own more than ten goods vehicles at any time during the previous year.

The important criteria in this scheme is the restriction of owning more than 10 goods vehicles at any time during the previous year. Thus, if an assessee is owning more than 10 goods vehicles during the year, then such an assessee cannot adopt this scheme.

Further, this scheme can be adopted only by the assessees who are engaged in the business of plying, hiring or leasing goods carriages. Thus, an assessee engaged in the business of passenger transport cannot adopt these provisions.

Illustration

Mr. Kumar engaged in the business of plying, hiring or leasing goods carriages owns 9 goods vehicles during the previous year 2020-21. Can he adopt the provisions of presumptive scheme of section 44AE in respect of this business?

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The provisions of section 44AE can be adopted by an assessee who is engaged in the business of plying, hiring or leasing of goods carriages and does not own more than ten goods vehicles at any time during the previous year. In this case Mr. Kumar owned only 9 vehicles during the year, thus, he satisfied both the criteria of the scheme and hence, he can adopt the provisions of section 44AE for his business of plying, hiring or leasing goods carriages.

How presumptive income is computed under section 44AE?

Scheme of computation of income

In case of an assessee who is willing to opt for these provisions, income will be computed on an estimated basis. The rate of computation of income on estimate basis is as follows :

In respect of heavy goods vehicle :

For Heavy Goods Vehicle, income will be computed at the rate of Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by taxpayer

In respect of other goods vehicle :

In case of vehicles other than heavy goods vehicle, income will be computed at the rate of 7,500 for every month or part of a month during which the goods carriage is owned by taxpayer. Part of the month would be considered as full month.

Note 1 : If the actual income is higher than the presumptive rate, i.e., higher than Rs. 1 ,000/Rs. 7,500, then such higher income can be declared.

Meaning of Goods vehicle (carriage) and heavy goods vehicle:

The expressions “goods carriage” and “heavy goods vehicle” shall have the meanings respectively assigned to them in section 2 of the Motor Vehicles Act, 1988

Clause (14) and clause (16) of section 2 of the Motor Vehicles Act, 1988, define “goods carriage” and “heavy goods vehicle”, respectively, as follows :

“Goods carriage” means any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods;

“Heavy goods vehicle” means any goods carriage the gross vehicle weight of which, or a tractor or a road-roller the unladen weight of either of which, exceeds 12,000 kilograms;’

Illustration

Mr. Khush engaged in the business of plying, hiring or leasing goods carriages owns 8 goods vehicles (heavy goods vehicles) having gross weight of 14,000 kilograms during the previous year 2020-21. He wants to adopt the provisions of section 44AE in respect of this business. In this case what will be the income as per the provisions of section 44AE?

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As per the provisions of section 44AE, in respect of heavy goods vehicle income will be computed at Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the assessee, during the previous year.

In the present case, Mr. Khush owned total 8 heavy goods vehicles having gross weight of 14,000 Kilograms. Hence, income will be computed as follows:

Particulars	Rs.
Income per month per heavy goods vehicle ( 14,000 kilograms i.e., 14 ton)	1,000*14
(×) No. of goods vehicle	8
Monthly income in case of heavy goods vehicle as per the provisions of section 44AE	1,12,000
(×) No. of months in a year	12
Total income as per the provisions of section 44AE from heavy goods vehicle	13,44,000

 Illustration

Mr. Khushal engaged in the business of plying, hiring or leasing goods carriages owns 6 goods vehicles (light goods vehicles) during the previous year 2020-21. He wants to adopt the provisions of section 44AE in respect of this business. In this case what will be the income as per the provisions of section 44AE?

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As per the provisions of section 44AE, in respect of goods vehicle (other than heavy goods vehicle) income will be computed @ Rs. 7,500 per month or part thereof during which the goods vehicle is owned by the assessee, during the previous year. In the present case Mr. Khushal owned 6 goods vehicles during the year and, hence, income will be computed as follows:

Particulars	Rs.
Income per month per goods vehicle (other than heavy vehicle)	7,500
(x) No. of goods vehicle	6
Monthly income as per the provisions of section 44AE	45,000
(x) No. of months in a year	12
Total income as per the provisions of section 44AE	5,40,000

Illustration

Miss. Khushali engaged in the business of plying, hiring or leasing goods carriages owns 4 goods vehicles (light goods vehicles) and 5 heavy goods vehicles having gross weight of 15,000 kilograms during the previous year 2020-21. She wants to adopt the provisions of section 44AE in respect of this business. In this case what will be the income as per the provisions of section 44AE?

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As per the provisions of section 44AE, in respect of goods vehicle (other than heavy goods vehicle) income will be computed @ Rs. 7,500 per month or part thereof during which the goods vehicle (other than heavy goods vehicle) is owned by the assessee during the previous year. In respect of heavy goods vehicle income will be computed @ Rs. 1,000 per ton of gross vehicle weight for every month or part of a month during which the heavy goods vehicle is owned by the assessee during the previous year. In the present case Miss. Khushali owned 4 light vehicles and 5 heavy goods vehicles during the year and, hence, income will be computed as follows :

Particulars	Rs.
Income per month per goods vehicle (other than heavy vehicle)	7,500
(x) No. of goods vehicle	4
Monthly income as per the provisions of section 44AE	30,000
(x) No. of months in a year	12
Total income as per the provisions of section 44AE from goods vehicles (other than heavy goods vehicles) (A)	3,60,000
Income per month per heavy goods vehicle ( 15,000 kilograms i.e., 15 ton)	1,000 x 15
(x) No. of heavy goods vehicle	5
Monthly income in case of heavy goods vehicle as per the provisions of section 44AE	75,000
(x) No. of months in a year	12
Total income as per the provisions of section 44AE from heavy goods vehicles (B)	9,00,000
Total income from business of plying, hiring or leasing goods carriages as per the provisions of section 44AE (A + B)	12,60,000

What are the provisions relating to various allowances/disallowances in case of an assessee opting for the scheme of section 44AE?

Provisions relating to various allowances/disallowances

Income computed as above will be net income for the business covered under this scheme.

From the net income computed as above, assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation).

Provisions in case of a partnership firm

It should be noted that an assessee, being a partnership firm, can claim further deduction of remuneration and interest to its partners within the limit specified under section 40(b). In other words, in case of an assessee being a partnership firm, separate deduction from the net income computed as per presumptive taxation scheme in respect of remuneration and interest paid to partners is allowed.

Further, from income computed at the aforesaid rate, no disallowance can be made under sections 40, 40A and 43B. Thus, in case of an assessee adopting the presumptive taxation scheme of section 44AE, no disallowance under section sections 40, 40A and 43B will apply.

Illustration

Mr. Kapoor is engaged in the business of plying, hiring or leasing goods carriages. He owned 8  goods vehicles during the previous year 2020-21 and declared income as per the provisions of section 44AE. After computing the income, he wants to claim further deduction on account of depreciation on the goods vehicle. Can he do so as per the provisions of section 44AE?

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As per the provisions of section 44AE, from the net income computed at the prescribed rate,, assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. Thus, in this case Mr. Kapoor cannot claim any further deduction from the net income computed.

Illustration

SM Transport Corporation a partnership firm is engaged in the business of plying, hiring or leasing goods carriages and owned 6 heavy goods vehicles during the previous year 2020-21 and declared income as per the provisions of section 44AE. After computing the income, the firm wants to claim further deduction on account of remuneration and interest to its partners within the limit specified under section 40(b). Can the firm do so as per the provisions of section 44AE?

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As per the provisions of section 44AE, from the net income computed at the prescribed rate, assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. However, in case of an assessee, being a partnership firm, further deduction on account of remuneration and interest to its partner within the limit specified under section 40(b) is allowed. Thus, in this case the firm can claim further deduction on account of remuneration and interest to its partners within the limit specified under section 40(b).

What is the manner of computation of WDV of depreciable assets in case of an assessee opting for the scheme of section 44AE?

Manner of computation of WDV of depreciable assets

As discussed above, an assessee opting for the presumptive taxation scheme is not permitted to claim deduction on account of various expenditures including depreciation.

In this context, as regards the computation of the WDV of depreciable asset, following provision should be kept in mind :

Deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AE shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, even though no depreciation is available separately, yet for purpose of computation of the WDV of the asset depreciation will be deducted.

Illustration

Essem Transport Corporation a partnership firm is engaged in the business of plying, hiring or leasing goods carriages and owned 8 heavy goods vehicles during the previous year 2020-21 and declared income as per the provisions of section 44AE. After computing the income , the partners of the firm are of the opinion that in computing the WDV of the vehicles owned by them depreciation will not be deducted since no deduction on account of the same is claimed. Is the contention of partners correct?

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As per the provisions of section 44AE, from the income computed as per the provisions of section 44AE, further deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AE shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, the contention of the partner is not correct. Even though no depreciation is claimed by the firm, yet for purpose of computation of the WDV of the asset, depreciation will be deducted from the value of the block.

What are the provisions relating to maintenance of books of account in case of an assessee opting for the scheme of section 44AE?

Provisions relating to maintenance of books of account

The scheme gives a great relief to the assessee in respect of maintenance of books of account. An assessee, who adopts above provision, is not required to maintain books of account as per section 44AA (applicable only for business covered by this section). Further, in respect of such business, the provisions of section 44AB (relating to audit) are also not applicable.

Thus, the scheme relieves the assessee from the maintenance of regular books of account. Apart from giving relief from maintenance of books of account, the scheme also relieves the assessee from audit of account.

Illustration

Mr. Kaushal is engaged in the business of plying, hiring or leasing goods carriages. He owned 8  goods vehicles during the previous year 2020-21 and declared income as per the provisions of section 44AE. In this case will he be liable to maintain the books of account in respect of aforesaid business?

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As per the provisions of section 44AE an assessee who adopts above provision is not required to maintain books of account as per section 44AA (applicable only for business covered by this section). However, it should be noted that the relief is available only in respect of business covered by the provisions of section 44AE and not in respect of any other business. Thus, if Mr. Kaushal owns any other business, then in respect of such business the provisions of section 44AA in respect of maintenance of books of account will apply.

Can an assessee covered by section 44AE declare lower income as compared to income specified in section 44AE?

Declaration of lower income

If the actual income from the business covered under section 44AE is lower than the income prescribed under the presumptive scheme, then the assessee can declare income from aforesaid business at a lower rate.

If the assessee does so, i.e., declares lower income, then the relief from maintenance of account in not available and he is required to maintain the books of account as per section 44AA and further, he has to get such books of account audited as per section 44AB.

Illustration

Mr. Kaushal is engaged in the business of plying, hiring or leasing goods carriages and owned 8 other than heavy goods vehicles during the previous year 2020-21. His actual income per goods vehicle per month is less than Rs. 7,500. In this case can he declare income lower than the limit prescribed under section 44AE?

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As per the provisions of section 44AE, if the actual income from the business covered under section 44AE is lower than the income prescribed under the presumptive scheme, then the assessee can declare income from aforesaid business at a lower rate (i.e., at less than Rs. 7,500). Thus, in this case Mr. Kaushal can declare lower income. However, in this case he has to maintain the books of account prescribed under section 44AA and has to get the account audited.

Can an assessee covered by section 44AE declaration higher income as compared to income specified in section 44AE?

Declaration of higher income

As regards the declaration of higher income, i.e., declaring income above the prescribed rate of Rs. 7,500 per month, the scheme permits the assessee to declare at his option higher income (i.e., higher than Rs. 7,500).

Illustration

Mr. Kamal is engaged in the business of plying, hiring or leasing goods carriages and owned 9  goods vehicles during the previous year 2020-21. His actual income per goods vehicle per month is more than Rs. 7,500. In this case can he declare income above the limit prescribed under section 44AE?

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As per the provisions of section 44AE, if the actual income from the business covered under section 44AE is higher than the income prescribed under the presumptive scheme, then the assessee has to declare such higher income from aforesaid business. Thus, in this case Mr. Kamal can declare higher income.