Section 44AE Of Income Tax Act - Example, Calculation & Applicability For AY 2023-24

Section 44AE of the Income Tax Act deals with the Presumptive Taxation Scheme. Under this scheme, eligible businessmen can audit their accounts by maintaining a regular book of accounts. On the other hand, if you are a small taxpayer, you can avoid the tedious process of maintaining regular records. Instead, you can opt for a Presumptive Taxation Scheme to calculate your income at a prescribed rate.

Here's more on the Presumptive Taxation Scheme!

Which Businesses are Eligible for Presumptive Taxation Scheme?

If you are engaged in businesses related to leasing goods carriages, plying, or hiring, you can opt for the Presumptive Taxation Scheme. However, you should own less than ten goods-carrying vehicles within any period during the previous FY to avail this scheme. Thus, businessmen engaged in the passenger transport business with more than 10 vehicles at any time within the previous financial year will not be eligible for this scheme.

For instance, let’s say that Mr Anand owned 8 goods vehicles during the financial year 2022-2023 and is engaged in the leasing goods carriages business. As per Section 44AE, Mr Anand would be eligible for the Presumptive Taxation Scheme.

Applicability of Section 44AE

You can ascertain the taxable income for any particular financial year by adopting the Presumptive Taxation Scheme. Any small business organisation dealing with hiring, plying, or leasing goods carriage can apply for this scheme. Assessees from partnership firms, self-employed individuals, HUFs, etc., can also apply for this scheme.

How to Calculate Presumptive Income Under Section 44AE?

If you fulfil the eligibility criteria, you can opt for Presumptive taxation under Section 44AE. Take a look at your income calculation procedure under the scheme:

1. Your net taxable income will be calculated at a monthly rate of Rs 7,500 per vehicle per month or part thereof the month during which you owned the vehicle in the previous financial year. 
2. The calculation process will be the same for both light (with a gross weight of less than or equal to 12MT) and heavy goods vehicles (more than 12MT gross weight).
3. As per Section 44AE, a part of the month when you owned the goods carriage will be considered a complete month for income calculation.
4. The calculated income will represent your net income, and no expenses shall be deducted in any case.

What are the Exceptions under Section 44AE?

According to Sections 30 to 38 of the Income Tax Act, you cannot claim any deduction or exemption on income tax if you have opted for Presumptive Taxation. The exemptions and deductions are available under Sections 80C to 80U. In the case of Section 44AE, the income calculation at a rate of Rs 7,500 for each vehicle per month is the net taxable income.

On the other hand, if you are part of a partnership firm, you can claim deductions for the interest and salary paid to the partners. It is important to note that you cannot avail deduction for depreciation under Presumptive Taxation. In this case, you can calculate the written-down price of a business asset after assuming the depreciation claim under Section 32 of the Income Tax Act.

If your business comes under Section 44AE’s limits, you no longer need to keep account books or confirm the requirements of it. On the other hand, if you have opted for Presumptive Taxation, you need to pay tax in advance like other taxpayers.

Other Conditions Related to Section 44AE

If you are liable to pay a lower tax than Rs 7,500 for each vehicle every month, you can refrain from following the Presumptive Taxation Scheme. However, in this case, you must maintain a book of accounts. Sections 44A and 44AB mandate auditing these accounting books.

Besides, if you, as a transporter, provide your PAN details, you can get a TDS exemption. The Income Tax Act of 1962 states that individual taxpayers can claim up to Rs 20,000 cash expense as a deduction. However, if you are a transporter with huge expenses while completing long journeys, you can claim a deduction of up to Rs 35,000.

Final Word

The Presumptive Scheme has set a certain income limit (Rs 7,500 per vehicle per month) for businesses under Section 44AE. If your business generates a higher income than the determined limit, you must declare the amount. Similarly, generating a lower income than the prescribed rate is also subjected to a declaration by the assessee. So, if your business comes under Section 44AE of the Income Tax Act, you must follow the mentioned parameters to adhere to taxation rules.