Presumptive Taxation – Section 44AE

Introduction

Section 44AE of the Income Tax Act is a presumptive taxation scheme introduced to simplify the income tax compliance for small transport owners. This section is applicable to persons who own less than 10 goods carriages in a financial year.

Under this scheme the income is calculated based on the type number of the goods carriages owned by the transporter rather than the actual income or expenses incurred during a financial year.

This section is more beneficial to truck operators, small fleet owners, and transport contractors who are engaged in the business of plying, hiring or leasing such goods carriages.

Section 44AE applicable to:

This section is applicable to:

• Individuals;
• HUFs;
• Partnership Firms;
• Companies

To opt for section 44AE, the above mentioned persons should not own more than ten (10) goods carriages at any time during the previous financial year and should be engaged in the business of plying, hiring or leasing such goods carriages.

Meaning of Important Terms

• Goods Carriage : As per section 2(14) of The Motor Vehicles Act, 1988 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;
• Gross vehicle weight : As per section 2(15) of The Motor Vehicles Act, 1988 Gross vehicle weight means in respect of any vehicle the total weight of the vehicle and load certified and registered by the registering authority as permissible for that vehicle;
• Heavy goods vehicle : As per section 2(16) of The Motor Vehicles Act, 1988 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 kilo grams;
• Unladen weight : As per section 2(48) of The Motor Vehicles Act, 1988 Unladen weight means the weight of a vehicle or trailer including all equipment ordinarily used with the vehicle or trailer when working, but excluding the weight of a driver or attendant; and where alternative parts or bodies are used the unladen weight of the vehicle means the weight of the vehicle with the heaviest such alternative part or body;

Types of Goods Carriage :

There are two types of goods carriages as follows:

How to Compute Income under section 44AE

Income under section 44AE is calculated as follows:

Type of Vehicle	Amount per vehicle
Heavy Goods Vehicle	₹1,000 per ton of gross vehicle weight or unladen weight
Other than Heavy Goods Vehicle	₹7,500 per vehicle

This amount is to be calculated for every month or part of the month for which the heavy goods vehicle or the goods carriage which is owned by the assessee in the previous year or an amount claimed to have been actually earned from such goods carriage, whichever is higher.

Advance Tax Compliance

Taxpayers opting to file return under section 44AE are required to pay the advance tax in the last instalment (i.e 15th March instalment) if the liability to pay advance tax arises.

Important points to be considered

• Actual Vehicle maintenance expenses such as fuel, insurance etc. will not be allowed as dedcution.
• Depreciation under section 32 of the Act shall be deemed to have been calculated.
• Interest and salary paid to partners of a firm can be claimed as deduction in the case of partnership firms.
• If a vehicle is not operational but still owned during a month, presumptive income applies.
• Lower Income declaration – If the taxpayer wants to declare lower income than the prescribed limits and his/her total income exceeds the basic exemption limit they must
  • Maintain books of accounts or other documents as prescribed in Section 44AA; and
  • Get the books of accounts audited and furnish an audit report as per Section 44AB.
• To be eligible for presumptive taxation number of vehicles should not exceed 10 at any point of time during the previous year.

Examples:

Example 1:

Mr.X owns 5 mini-trucks(light vehicles) for the entire year. Is he eligible to opt for section 44AE and what is his business income?

Yes, Mr.X is eligible to opt for section 44AE as he owns less than 10 vehicles in a financial year.

Income from Business = 5 X ₹7,500 X 12months = ₹4,50,000/-

Example 2:

Mr.Y owns 3 heavy trucks of 20 tonnes each for the whole year. Is he eligible to opt for section 44AE and what is his business income?

Yes, Mr.Y is eligible to opt for section 44AE as he owns less than 10 vehicles in a financial year.

Income from Business = 3 X ₹1,000 per ton X20 tonnes X 12months = ₹ 7,20,000/-

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