SECTION 44AE - BUSINESS OF PLYING, HIRING OR LEASING GOODS CARRIAGE

Section 44AE

The scheme u/s 44AE is designed to give relief to small taxpayer (an individual, HUF, firm, or company) who is engaged in the business of plying, hiring, or leasing goods carriages and who does not own more than 10 goods carriage vehicles at any time during the relevant year. Taxpayers adopting this scheme are relieved from tedious job of maintenance of books of account and also from getting their accounts audited.

Eligibility For Presumptive Taxation Scheme

The presumptive taxation scheme of section 44AE can be adopted by a person who is engaged in the business of plying, hiring or leasing of goods carriages and who does not own more than 10 goods vehicles at any time during the year. The important criteria of the scheme is the restriction on owning of not more than 10 goods vehicles at any time during the year.

Thus, if a person owns more than 10 goods vehicles at any time during the year, then he cannot take advantage of this scheme. 

Benefits of Section 44AE

The following are the benefits of Section 44AE-

• Simplified Calculation

  The calculation of income under Section 44AE is a simple and straightforward method that does not require the maintenance of books of accounts.

• Lower Tax Liability

  Since the income under Section 44AE is presumed, the tax liability of the individual is reduced.

• Compliance

  Section 44AE reduces the compliance burden for small transporters who may not have the resources to maintain proper books of accounts.

• No Scrutiny

  The income calculated under Section 44AE is not subject to scrutiny by the tax authorities.
  

How presumptive income is computed under section 44AE? 

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 Rs. 7,500 for every month or part of a month during which the goods carriage is owned by taxpayer. 

Note: Part of the month would be considered as full month.

"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.

Consequences of opting Presumptive Taxation Scheme u/s 44AE

• Deduction under section 30 to 38 shall be deemed to have been allowed provided that where the assessee is a firm, the salary and interest paid to its patners shall be deducted from the income computed under section 44AE(1) subjects to the conditions and limits specified in section 40(b). 

Note: Such salary and interest is not allowable as deduction in case of section 44AD and section 44ADA.

• Assessee to maintain accounts and get them audited if he claims profits to be less than the specified amount.
• ITR 4 would be applicable for Income disclosed under this Section.
• The provisions of Section 44AA and Section 44AB shall not apply and for computing monetary limit of maintenance of accounts and tax audit, gross receipts from such business not to be included.
• The written down value of any asset used for the purpose of business whose income is taxable in any of the presumptive schemes shall be calculated as if the taxpayer has claimed and has been actually allowed the deduction for depreciation as per the rates prescribed under the Income Tax Rules for each of the relevant assessment years, for which the income is estimated under presumptive income schemes sections under Income.

Example 1: Mr. Rahul is engaged in the business of plying, hiring or leasing of goods carriage. Throughout the year 2022-23 he owned 9 goods vehicles (other than heavy goods vehicles). What will be the taxable income from the business of plying, hiring or leasing of goods carriages if he adopts the provisions of section 44AE? 

As per the provisions of section 44AE, 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 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.

In the present case, Mr. Rahul owned 9 goods vehicles (other than heavy goods vehicles) throughout the year and, hence, income will be computed as follows:

Example 2: Mr Akash is engaged in the business of hiring goods-carrying vehicles. He hired 5 heavy goods-carrying vehicles with a gross weight of 13,000 kilograms from April 01, 2022, to November 30, 2022, and hired 3 light goods carriages from October 10, 2022, to March 31, 2022. Compute the taxable income of Mr. Akash.

As per Section 44AE of the Income Tax Act, Mr Akash business income will be calculated as follows –

Taxable Income For Heavy Goods-Carrying Vehicles 

Number of Vehicles * Number of Months * 1000 * Number of Vehicle’s Tons

Taxable Income For Light Goods-Carrying Vehicles

Number of Vehicles * Number of Months * 7500