44ae of income tax act
Understanding Section 44AE of the Income Tax Act
- What is Section 44AE?
- Applicability of Section 44AE
- Eligibility Criteria for Section 44AE
- Calculation of Presumptive Income under section 44AE
- Tax Filing Due Dates Under Section 44AE
- Benefits of Section 44AE
- Exceptions under Section 44AE
- Other Conditions Related to Section 44AE
- Documents Required for Filing Taxes Under Section 44AE of Income Tax Act
- Penalties for Incorrect Filing Under Section 44AE of Income Tax Act
- Income Declarations and Depreciation Treatment Under Section 44AE of Income Tax Act
- Conclusion
- FAQs
What is Section 44AE?
Section 44AE is a part of the Presumptive Taxation Scheme. It helps small transporters with a few goods vehicles to pay tax simply. Instead of keeping complete records of income and expenses, they can show a fixed income for each vehicle on a monthly basis. This makes tax filing much easier and saves time.
This scheme is mainly for individuals, HUFs, and partnership firms who are in the business of transporting goods. It provides them with relief from complicated paperwork and helps avoid issues with income reporting.
Applicability of Section 44AE
Section 44AE of the Income Tax Act provides a straightforward method for paying tax for individuals who operate a business of hiring, leasing, or plying goods vehicles.This scheme is open to everyone, whether you’re an individual, part of an HUF, a partnership firm, or even a company. Unlike Section 44AD, there’s no restriction on who can use it.
Eligibility Criteria for Section 44AE
To use the presumptive taxation scheme under Section 44AE, you need to follow these simple rules:
- Type of work: This scheme is only for those who run a goods transport business, such as plying, hiring, or leasing goods vehicles.
- Vehicle limit: You should not own more than 10 goods vehicles at any time during the year. If you have even one extra, you can’t use this scheme.
- Who can apply: Individuals, Hindu Undivided Families (HUFs), and partnership firms are eligible. But LLPs (limited liability partnerships) cannot use it.
Example:
Let’s say Mr. Amit has 8 goods vehicles and runs a transport business; he can opt for this scheme. But if he owns 12 vehicles, then he can’t use this and will need to maintain proper books and follow normal tax rules.
Calculation of Presumptive Income under section 44AE
Under Section 44AE, income is calculated at a fixed rate per vehicle. There is no need to show actual income or expenses.
For Light Goods Vehicles (up to 12,000 kg)
You must show an income of ₹7,500 per month for each vehicle, even if it’s used only for part of the month.
For Heavy Goods Vehicles (more than 12,000 kg)
You need to show ₹1,000 per ton per month (or part of a month).
Example 1: Light Goods Vehicles
Mr. Sharma has 6 small trucks for a full year. His income as per Section 44AE:
6 vehicles × ₹7,500 × 12 months = ₹5,40,000
Example 2: Heavy Goods Vehicles
Mr. Verma owns 2 trucks, each 15 tons, for 10 months:
2 vehicles × 15 tons × ₹1,000 × 10 months = ₹3,00,000
Important Note:
This is your final income. You can’t claim any additional expenses, such as diesel, maintenance, etc.
Tax Filing Due Dates Under Section 44AE
To avoid paying extra charges, transporters should file their ITR on time:
- For individuals and HUFs, the last date is 31st July of the next assessment year.
- For partnership firms, the due date is 30th September of the next assessment year.
If you miss the deadline, you may have to pay a late fee, interest on pending tax, and other penalties.
Benefits of Section 44AE
If you run a small transport business, Section 44AE can really make your life easier when it comes to taxes. Here’s how:
- No Need for Detailed Accounts
You don’t have to keep full records or maintain big books. This saves time and reduces tension. - Fixed Income for Tax
Income is calculated at a fixed rate per vehicle, so there is no need to calculate actual profit or loss every time. This makes tax filing simple. - No Tax Audit Tension
Usually, if your turnover is high, a tax audit is compulsory under Section 44AB. But if you choose 44AE, no audit is needed. - Saves Time and Money
Since you don’t need a CA audit or detailed accounting, you save both time and money. - 5. May Reduce Tax
If your real profit is more than the fixed rate, this scheme can help you pay less tax legally.
Exceptions under Section 44AE
If you choose the presumptive taxation scheme under Section 44AE, then you cannot claim deductions under Sections 30 to 38 of the Income Tax Act. This means expenses such as rent, repairs, and depreciation are not allowed as separate deductions. The income calculated for light or heavy goods vehicles as per the rules (after changes in 2018) will be treated as your total taxable income.
However, you can still claim deductions under Sections 80C to 80U, such as investments, LIC, etc. Also, if you’re running the business as a partnership firm, then salary and interest paid to partners can be claimed as deductions.
Other Conditions Related to Section 44AE
If someone is in the business of running, renting, or leasing goods vehicles and does not want to choose the presumptive taxation option, and if they show income of less than ₹7,500 per vehicle per month, then they must keep proper account books and have them audited as per Sections 44AA and 44AB.
Now, if the transporter gives their PAN, then there is no need to deduct TDS on the amount paid to them.
As per Income Tax rules, if someone spends more than ₹20,000 in cash, they can’t claim that amount as an expense. But for transporters, since their travel expenses are usually high, the cash limit is ₹35,000 instead of ₹20,000. However, if payment is made by cheque or demand draft directly to the transporter’s account, then it’s allowed even if it’s more than the limit.
Documents Required for Filing Taxes Under Section 44AE of Income Tax Act
While the Presumptive Taxation Scheme under Section 44AE makes tax filing easier by removing the need to maintain detailed accounts, you still need to keep some basic documents ready. Here’s a simple list of what you should have while filing your return under this scheme:
Vehicle Details
You need to share details of all goods vehicles owned or taken on lease during the year. This includes:
- Type of vehicle (light or heavy goods vehicle)
- Gross Vehicle Weight (GVW) or unladen weight for heavy vehicles
- Period for which each vehicle was owned or leased during the year
PAN Details for TDS
If you have made any payments and deducted TDS, make sure you have the PAN details of the people or businesses you paid. This helps avoid any issues or mismatches while filing your return.
Other Supporting Documents
The Income Tax Department may ask for some extra documents when you file your return. These may include:
- Proof of ownership or lease of vehicles
- Bank statements or other records showing your income and expenses
- TDS certificates, if applicable
Keeping these documents handy ensures a smooth and error-free filing process under Section 44AE.
Penalties for Incorrect Filing Under Section 44AE of Income Tax Act
The Presumptive Taxation Scheme under Section 44AE is meant to make tax filing easier for small transporters. However, while filing your Income Tax Return (ITR), you must ensure all details are correct and complete. Any mistake or missing information can lead to penalties and extra interest, which may increase your total tax amount.
Here are some penalties you should be aware of:
1. Late Filing Fees
If you fail to file your ITR before the due date, you may have to pay a late filing fee under Section 234F. The penalty can range from ₹1,000 to ₹5,000 depending on how late you file.
If the delay is longer and your taxable income is high, the penalty can go up to ₹10,000.
2. Interest on Unpaid Tax
If you show less income or do not pay the correct tax amount, you will have to pay interest under Sections 234A, 234B and 234C. The interest is charged monthly and adds to your total tax liability.
3. Penalty for Concealment of Income
If you hide income or provide false details in your return, you can face strict penalties under Section 270A.
The penalty can be between 100% and 300% of the tax amount you tried to evade. This applies when the tax department finds that the concealment was intentional.
Income Declarations and Depreciation Treatment Under Section 44AE of Income Tax Act
Section 44AE of the Income Tax Act makes it easier for small transporters to pay tax. However, there are a few important points to know about depreciation and income declaration under this scheme.
Depreciation
Under Section 44AE, taxpayers cannot claim a separate deduction for depreciation from the presumptive income. But depreciation is still considered while calculating the Written Down Value (WDV) of the asset. This is done as per the rules of Section 32 of the Income Tax Act to ensure that the asset value is properly recorded over time.
Declaration of Lower Income
If the actual income of the taxpayer is less than the income calculated under the presumptive scheme, they can declare the lower income. In such cases, it is compulsory to maintain proper books of accounts as per Section 44AA and get them audited as per Section 44AB.
Declaration of Higher Income
If the actual income is more than the presumptive income, the taxpayer can declare the higher income voluntarily. There is no restriction on showing a higher income than what is fixed under Section 44AE.
These rules give small transporters flexibility while filing their income tax, helping them show their true income while staying within the law.
Conclusion
If your business falls under Section 44AE of the Income Tax Act, then you have to follow some set rules. As per this scheme, your monthly income is fixed at Rs 7,500 per vehicle.
If you earn more than this amount, you must show the actual income in your return. But if your income is less than this, then you cannot use the presumptive scheme. In that case, you will have to maintain proper books of accounts and also get them audited as per Section 44AB.
Therefore, ensure that you follow these conditions correctly if your business is covered under Section 44AE.
We’ve reached the end! If you have any questions or doubts about Section 44AE, feel free to drop them in the comments below, we’re here to help.
FAQs
Q. Who comes under Section 44AE?
Ans: This section is for those who run a business of carrying goods using vehicles. If you own up to 10 goods vehicles and earn money by giving them on rent, lease or by using them yourself, then Section 44AE applies to you.
Q. Which ITR should I file under presumptive taxation as per Section 44AE?
Ans: If you fall under Section 44AE, then you are required to file ITR-4.
Q. How to file under section 44AE in ITR?
Ans: If you are filing under section 44AE, you need to use the ITR 4 form.
Q. What is the limit of vehicles after which a person can't choose the presumptive taxation under section 44AE?
Ans: To be eligible for the presumptive tax scheme under section 44AE, the person should be in the business of running, hiring or leasing goods vehicles and must not own more than 10 goods vehicles at any time during the financial year.
