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  • Section 44AE of Income Tax Act

    Section 44AE is part of the Presumptive Taxation Scheme of the Income Tax Act, 1961. The Act mandates businesspersons to maintain regular books of account and to get his accounts audited. However, it allows small taxpayers to do away with this tedious maintenance through the presumptive taxation scheme. Those who opt for this scheme can calculate their income at a prescribed rate and be exempt from maintaining account books and audit. The presumptive taxation scheme includes Sections 44AD and 44AE.

    Union Budget 2018

    Eligibility For Presumptive Taxation Scheme:

    Section 44AE is applicable to individuals or entities engaged in the business of plying, hiring or leasing of goods carriages. These entities – individual, Hindu United Families, firms or companies – should own not more than 10 goods carriage vehicles at any time in a given financial year, to be eligible for presumptive taxation.

    Those opting for presumptive taxation scheme under Section 44AE can estimate their income at Rs. 7,500 per month per vehicle owned, irrespective of whether it is a light goods vehicle or a heavy goods vehicle. Taxes have to paid as per this computation. For example, if Bharatbhai owns 7 goods carriage vehicles, then his income will be presumed at Rs. 5,25,000 (Rs. 7,500 x 7) per month and Rs. 63 lakh annually. If the actual income is higher than Rs. 7,500, it can be specified in the Income Tax Return.

    Exceptions Under Section 44AE:

    Those opting for presumptive taxation cannot claim exemptions and deductions on income tax as per sections 30 to 38 of the Income Tax Act. The computation of income based on Rs. 7,500 per vehicle per month will be considered as the final taxable income. However, exemptions and deductions under sections 80C to 80U can be availed.

    However, if the taxpayer is a partnership firm then deduction can be claimed for salary and interest paid to partners as per the norms of the Income Tax Act. While deduction for depreciation is not available, the written-down value of any asset used in the business can be calculated assuming that depreciation under Section 32 has been claimed and allowed.

    Those coming under the ambit of Section 44AE do not have to conform to Section 44AA and are excepted from having to maintain account books. However, an individual who has opted for presumptive taxation has to pay advance tax as everyone else.

    Other Conditions:

    Anyone in the business of plying, hiring or leasing of goods carriage, who does not wish to opt for the presumptive taxation scheme and declares a lower income than Rs. 7,500 per month per vehicle, has to maintain account books and get it audited as per Sections 44AA and 44AB.

    If the transporter provides his PAN details TDS does not have to be deducted on the amount paid to the transporter. According to Income Tax Act, if an individual incurs more than Rs. 20,000 as expense, cannot claim that expense as a deduction. The exception to this is if the payment is made through cheque or demand draft drawn to be paid to the account of the receiver. But since transporters have to incur heavy expenses on long journeys, the maximum amount for them is Rs. 35,000 and not Rs. 20,000. 

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