To give relief to small assessees, the Income-tax Law has incorporated a simple scheme commonly known as Presumptive Taxation Scheme. There are two schemes viz. the scheme of section 44AD and the scheme of 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 2014-15. Can he adopt the provisions of presumptive scheme of section 44AE in respect of this business?

**

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 :

In respect of heavy goods vehicle income will be computed @ Rs. 5,000 per month or part thereof during which the heavy goods vehicle is owned by the assessee, during the previous year. From Assessment Year 2015-16 i.e. Financial Year 2014-15 the same is been increased to Rs. 7500/- per month and differentiation between Heavy and other good vehicles been removed.

In respect of other goods vehicle :

In case of any other goods vehicle (i.e. other than heavy goods vehicle) income will be computed @ Rs. 4,500 per month or part thereof during which the goods vehicle is owned by the assessee during the previous year. From Assessment Year 2015-16 i.e. Financial Year 2014-15 the same is been increased to Rs. 7500/- per month and differentiation between Heavy and other good vehicles been removed.

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) during the previous year 2014-15. 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?

**

As per the provisions of section 44AE, in respect of heavy goods vehicle income will be computed @ Rs. 7,500 per month or part thereof during which the heavy goods vehicle is owned by the assessee, during the previous year. In the present case Mr. Khush owned 8 heavy goods vehicles during the year and, hence, income will be computed as follows :

Particulars Rs.
Income per month per heavy goods vehicle 7,500
(×) No. of goods vehicle 8
Monthly income as per the provisions of section 44AE 60,000
(×) No. of months in a year 12
Total income as per the provisions of section 44AE 7,20,000

 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 2012-13. 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?

**

As per the provisions of section 44AE, in respect of goods vehicle (other than heavy goods vehicle) income will be computed @ Rs. 4,500 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) 4,500
(x) No. of goods vehicle 6
Monthly income as per the provisions of section 44AE 27,000
(x) No. of months in a year 12
Total income as per the provisions of section 44AE 3,24,000

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 during the previous year 2012-13. 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?

**

As per the provisions of section 44AE, in respect of goods vehicle (other than heavy goods vehicle) income will be computed @ Rs. 4,500 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. 5,000 per month or part thereof 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) 4,500
(x) No. of goods vehicle 4
Monthly income as per the provisions of section 44AE 18,000
(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) 2,16,000
Income per month per heavy goods vehicle 5,000
(x) No. of heavy goods vehicle 5
Monthly income as per the provisions of section 44AE 25,000
(x) No. of months in a year 12
Total income as per the provisions of section 44AE from heavy goods vehicles (B) 3,00,000
Total income from business of plying, hiring or leasing goods carriages as per the provisions of section 44AE (A + B) 5,16,000

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 (i.e., @ Rs. 4,500 per month /Rs. 5,000 per month/Rs. 7,500/- per month) 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 2014-15 and declared income as per the provisions of section 44AE. After computing the income @ Rs. 7,500 per month, 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?

**

As per the provisions of section 44AE, from the net income computed at the prescribed rate, i.e., Rs. 7,500 per month, 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 @ Rs. 7,500/- per month.

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 2014-15 and declared income as per the provisions of section 44AE. After computing the income @ Rs. 7,500 per month, 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?

**

As per the provisions of section 44AE, from the net income computed at the prescribed rate, i.e., Rs. 7,500 per month, 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 2014-15 and declared income as per the provisions of section 44AE. After computing the income @ Rs. 7,500 per month, 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?

**

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 2014-15 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?

**

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 heavy goods vehicles during the previous year 2014-15. 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?

**

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 2014-15. 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?

**

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.

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36 responses to “All about Section 44AE of Income Tax Act, 1961”

  1. RAKESH KUMAR SINH says:

    If a person have 2 tractors and earning income from plying & hiring of tractors, whether the income earned from such tractor is eligible to compute under section 44AE for Income Tax purpose.

  2. Amit says:

    i have six crane i want know filling ITR under section 44 AD or 44AE please tell me……

  3. HARITHA says:

    WHAT IS PART OF MONTH ? SHOULD I TAKE EVEN 1 DAY

  4. HIMANSHU says:

    I am transporter and having less than 10 heavy vehicle and covered under 44AE.BUT I WANT FILL MY RETURN AS PER SECTION 44AD.CAN I DO THIS

  5. PUNKAJ TANDON says:

    WHAT WILL BE THE POSITION OF wdv OF THE VEHICLE IN THE BALANCE SHEET IF A PERSON HAVE FOUR TRUCKS AND IS SHOWING INCOME UNDER SECTION 44 AE OF INCOME TAX ACT

  6. rahul says:

    Hello i have my own tactor and i drive so should i disclose income under sec 44ae ?

  7. M jalan says:

    We have 2 407 under light goods category and 5 1109 tata trucks having GVW below 12000kgs. what is the tax laibility under sec 44AE

  8. Hinal Shah says:

    sir, if i want to declare higher income than should i need to maintain books of account & audited my accounts and on which amount i need to pay tax whether it is on 7500*12*no. of vehicles or on actual profit???

    • Rakesh says:

      Hi Hinal, People who wants to declare higher income they need to comply with section 44AA and 44AB (Audit from chartered accountant)
      Yes you are required to maintain Accounts if you declare income more than Rs 150000 or your annual turnover is more than 25 lacs in last 3 years.
      44AB also applies when someone declares income less than provision of 44AE (7500 Per month) , They need to get audited.
      Hope that helps you.

  9. Sarvesh Shekhar Puranik says:

    What will be the taxability if I sell one truck & purchase an another out of the proceedings of sale?
    Is it covered by 44AE if the total nos of trucks is still only 1?

    • Rakesh says:

      Hi Sarvesh,
      You can keep selling an buying a truck. It will be considered as one truck only. But however let say. You have 1 truck in April. You purchased 2nd truck on before selling first truck in May. At this point you owned two trucks. You have to consider 15000 Rs income for that month. Let say you sold that 1st truck in may itself. You have now only one truck in June. So for 3 month you have total income 7500 for April, 15000 for May and 7500 for june under Section 44AE. Hope that helps you.

  10. tapan sodani says:

    Can 44AE be opted by any assesse for professional income

    • Rakesh says:

      No, It is only applicable for people who in business of plying, hiring or leasing of goods carriages upto 10 Carriages (Any kind of truck)

  11. VIVEK RANJAN says:

    Article and practical question both very help full to understand Section 44AE. Off-course, presented very nicely.

    Thanks,
    VIVEK RANJAN,Chennai

  12. Sahil says:

    If I own 10 Owens trucks and hire 2 trucks will this scheme be applicable to me

  13. rajiv says:

    sir
    i owned 10 truck whole the year , but my turnover is 12500000/- show in 26As can I apply section 44AE in income tax return

    • Rakesh says:

      Hi Rajiv, Unfortunately No. You will fall under Section 44AA and Section 44AB. You are required to maintain Accounts and get audited.

  14. chandrasekhar says:

    sir ,u/s 44AE Part of the month means

    • Rakesh says:

      If you own a truck for not even for full month. Income for such truck will be calculated full for that month. Not pro-rata basis.

  15. franklings says:

    if a proprietor running GTA is not owned any vehicle 44 AE is applicable?. how can he calculate his income 44ADdor 44AE

  16. franklings says:

    if a proprietor running GTA by hiring trucks(heavy vehicle) and providing services to the parties how can he calculate his presumptive taxation income as per 44 AE. He does not owned any heavy vehicles

  17. Ca pankaj sharma says:

    Presumptive taxation do not consider the idleness of vehicle. You have to show 7500 pm as income irrespective of the fact that your vehicle were idle.

  18. Ca pankaj sharma says:

    In case of presumptive taxation no deduction is allowed other than remuneration and interest in case of a partnership firm….. but you can claim deduction if you are not adoting 44ae

  19. Vijay Patel says:

    Sir,
    If i have 8 trucks and sale 2 truck out of 8 truck and get short term loss and i filed return in 44AE it can be carry forward..?

  20. Dhirender Singh says:

    Please help me
    whether buses running on contract basis under Uttar Pradesh State Road Transport Corporation (UPSRTC) is covered under this Section or not.

    • Rakesh says:

      Hi Dhirender, Section 44AE applicable to Goods vehicle only. You can’t take benefit of section 44AE. You are required to maintain books and get audited.

  21. mahesh says:

    Sir…in f.y.2009-10,according to 26as my income from plying of 2 vehicles is 850000 …can I deduct salaries, diesel exp, conveyance…etc….

  22. PRATIK PADHIYAR says:

    If an assessee owned 5 vehcles during the f.y. 2014-15 and income per vehicle is more than 7500/month. but one vehicle is being idle for 3 months and one vehicle is stay idle for 5 months. Then he can adopt this scheme/ if yes How?

    Pratik Padhiyar

  23. ramnath says:

    this is very clearly explained

  24. Reddy says:

    Sir,

    What would be the case if the person does not own any goods carriage vehicle, but he is engaged in the business of transportation of goods i.e. (hiring from some lorry owner whenever he required to transport goods). Whether sec 44AE applies to such persons?

    • TARUN GUPTA says:

      SECTION 44AE IS NOT APPLICABLE TO A PERSON HAS NOT OWNER OF ANY VEHICLE. OWNERSHIP IS THE PRIME CONDITION TO AVAIL SECTION 44AE

  25. Vishnu says:

    If the assessee is having audit u/s 44AB of his business (trading) and the books contain income by way of hiring of Vehicles, does he need to add back the net income from hiring and show under 44AE? (All conditions u/s 44AE are satisfied)

  26. vsnmurty says:

    Hi,
    Ownership of more than 10 vehicles even on a single day in an year will rob the benfits sec 44AE & sec 194 C from the person.What is ownership?It may generate a lot of debate

  27. G.L.Jain says:

    very nicely presented. worth reading.all practical aspect covered

    thanks.

    G.L.Jain, Bilaspur

  28. Vinod Pandey says:

    The article is well-written, cogent and lucid. I would love to see such articles more often.

    Vinod Pandey
    Asstt. Divisional Finance Manager/Malda Division
    Eastern Railway

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