44ae of income tax act
Understanding Section 44AE of the Income Tax Act
In this post, we will discuss Section 44AE of the Income Tax Act, a simple tax scheme made especially for small transport businesses with goods vehicles.
Let’s look at these sections:
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.
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.
