Section 44AE of the Income Tax Act is a provision that lays down the presumptive taxation scheme for businesses engaged in the transportation of goods. It provides for a simpler way of computing income tax liability for small transporters who may not have the resources to maintain detailed accounts and books of accounts. In this blog, we will discuss the salient features of Section 44AE of the Income Tax Act for the assessment year (AY) 2018-19.
What is Section 44AE of the Income Tax Act?
Section 44AE of the Income Tax Act, 1961, is applicable to businesses engaged in the transportation of goods by way of a heavy goods vehicle. The section provides for a presumptive taxation scheme for such businesses. According to this scheme, the income of the taxpayer is presumed to be a certain percentage of the gross receipts of the business.
Who is eligible to opt for Section 44AE?
Small transporters who own not more than ten goods carriages and are engaged in the business of transportation of goods are eligible to opt for the presumptive taxation scheme under Section 44AE. The following conditions must be satisfied to be eligible for the scheme:
- The taxpayer should be engaged in the business of plying, hiring, or leasing goods carriages.
- The taxpayer should own not more than ten goods carriages at any time during the previous year.
- The taxpayer should have furnished a return of income under Section 139 of the Income Tax Act for the relevant assessment year.
- The taxpayer should not have claimed any deductions under Sections 10AA, 32AC, 33AB, 33ABA, and 35.
How is the income computed under Section 44AE?
Under Section 44AE, the income of the taxpayer is presumed to be a certain percentage of the gross receipts of the business. The presumptive income is calculated as follows:
- For heavy goods vehicle (i.e. a goods carriage having a gross vehicle weight of more than 12,000 kg), the presumptive income is Rs. 1,000 per tonne of gross vehicle weight or part thereof, per month, or part thereof.
- For other goods vehicles (i.e. a goods carriage having a gross vehicle weight of up to 12,000 kg), the presumptive income is Rs. 7,500 per month, or part thereof.
The total presumptive income is calculated by multiplying the above-mentioned rates with the number of goods vehicles owned by the taxpayer during the previous year and the number of months during which the vehicles were owned by the taxpayer.
What are the benefits of opting for Section 44AE?
The presumptive taxation scheme under Section 44AE offers the following benefits to small transporters:
- It eliminates the need for maintaining detailed books of accounts and other records, thereby reducing compliance costs.
- It provides for a simpler way of computing income tax liability, as the income is presumed to be a certain percentage of the gross receipts.
- It offers certainty in tax liability, as the taxpayer knows the amount of tax payable in advance.
Conclusion
Section 44AE of the Income Tax Act provides for a presumptive taxation scheme for small transporters engaged in the business of transportation of goods. The scheme offers a simpler way of computing income tax liability and reduces compliance costs. Small transporters who own not more than ten goods carriages can opt for the scheme provided they satisfy the conditions laid down in the section.
Read more useful content:
- section 234e of income tax act
- section 286 of income tax act
- section 90a of income tax act
- section 40a(7) of income tax act
- section 226(3) of income tax act
- section 24 of income tax act
Frequently Asked Questions (FAQs)
Q. What is Section 44AE of the Income Tax Act, 1961?
Section 44AE of the Income Tax Act provides for a presumptive taxation scheme for businesses engaged in the transportation of goods. It offers a simpler way of computing income tax liability for small transporters who may not have the resources to maintain detailed accounts and books of accounts.
Q. Who is eligible to opt for Section 44AE?
Small transporters who own not more than ten goods carriages and are engaged in the business of transportation of goods are eligible to opt for the presumptive taxation scheme under Section 44AE.
Q. What are the conditions that must be satisfied to be eligible for the scheme under Section 44AE?
The taxpayer should be engaged in the business of plying, hiring, or leasing goods carriages, own not more than ten goods carriages at any time during the previous year, have furnished a return of income under Section 139 of the Income Tax Act for the relevant assessment year, and should not have claimed any deductions under Sections 10AA, 32AC, 33AB, 33ABA, and 35.
Q. How is the income computed under Section 44AE?
The income of the taxpayer is presumed to be a certain percentage of the gross receipts of the business. For heavy goods vehicle, the presumptive income is Rs. 1,000 per tonne of gross vehicle weight or part thereof, per month, or part thereof. For other goods vehicles, the presumptive income is Rs. 7,500 per month, or part thereof. The total presumptive income is calculated by multiplying the above-mentioned rates with the number of goods vehicles owned by the taxpayer during the previous year and the number of months during which the vehicles were owned by the taxpayer.
Q. What are the benefits of opting for Section 44AE?
The presumptive taxation scheme under Section 44AE eliminates the need for maintaining detailed books of accounts and other records, thereby reducing compliance costs. It provides for a simpler way of computing income tax liability, as the income is presumed to be a certain percentage of the gross receipts. It offers certainty in tax liability, as the taxpayer knows the amount of tax payable in advance.
Q. Can a taxpayer opt-out of the presumptive taxation scheme under Section 44AE?
Yes, a taxpayer can opt-out of the presumptive taxation scheme under Section 44AE. However, if the taxpayer opts-out, he/she will have to maintain detailed books of accounts and get the accounts audited if the total income exceeds the maximum amount not chargeable to tax.
Q. What are the consequences of not complying with the conditions laid down under Section 44AE?
If a taxpayer fails to comply with the conditions laid down under Section 44AE, the provisions of the Income Tax Act will apply as if the taxpayer had not opted for the presumptive taxation scheme. The taxpayer will have to maintain detailed books of accounts and get the accounts audited if the total income exceeds the maximum amount not chargeable to tax.
Q. Is it mandatory to opt for the presumptive taxation scheme under Section 44AE?
No, it is not mandatory to opt for the presumptive taxation scheme under Section 44AE. It is an optional scheme that small transporters can choose to avail of. However, if the taxpayer does not opt for the scheme, he/she will have to maintain detailed books of accounts and get the accounts audited if the total income exceeds the maximum amount not chargeable to tax.
