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Section 44AE: Presumptive Taxation Scheme for Transporters
Essentially, an audit refers to an official evaluation of an organization’s accounts to rule out unintentional errors or intentional discrepancies. A tax audit has additional layers of complexity because it entails an in-depth examination of accounts to ensure compliance with tax laws and guidelines. In this comprehensive guide, we will share an overview of tax audits under 44B of the Income Tax Act.
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Section 44AE
Section 44AE is intended for individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding LLPs) who engage in the business of transporting, hiring, or leasing goods carriages. It establishes a predefined income per vehicle, simplifying income tax calculations for transporters. Furthermore, Section 44AE eliminates the requirement for detailed bookkeeping, making the tax filing process more simple and time-efficient.
Eligibility Conditions under Section 44AE
The presumptive taxation scheme under Section 44AE is applicable to individuals, Hindu Undivided Families (HUFs), partnerships excluding LLPs, and companies doing the business of leasing, renting, or plying goods carriages and having not more than 10 good carriage vehicles at any point of time during the financial year. It includes both owned and leased vehicles.
Meaning of Light Weight and Heavy Weight Vehicles:
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Light Weight Vehicles: Gross weight of up to 7,500 kg.
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Heavy Weight Vehicles: Gross weight more than 7,500 kg.
Thus, owners of more than 10 vehicles must comply with the regular tax provisions and must maintain detailed accounts and records for their expenses.
Provisions under Section 44AE
Under Section 44AE, the presumptive income for heavy weight vehicles is set at INR 1,000 per ton per month or part thereof of gross weight vehicle, or unladen weight.
For light weight vehicles, the presumptive income is assumed to be INR 7,500 per vehicle per month or part thereof.
Steps to Calculate Income as per Section 44AE
Below mentioned steps should be followed to compute the income as per Section 44AE:
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Step 1: The number and the type of vehicle whether heavy weight or light weight should be identified.
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Step 2: The applicable rate, that is, INR 1,000 or INR 7,500 per month or part thereof should be applied to the number and type of vehicles determined in Step 1.
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Step 3: Add all the presumed income for each vehicle type to determine the total presumptive income.
Example on How to Calculate Income under Section 44AE
Mr. Sachin has been operating the business of plying, hiring, and leasing of goods carriages. During the previous financial year, he owned 9 vehicles in total including light and heavy weight goods carriages. The following are the details of each:
Calculation of presumptive income of Mr. Sachin under Section 44AE:
Calculation details:
Type A Vehicle: These include 3 heavy goods carriages having a gross weight of 12,000 kg each, used from the period 1st April to 31st January. The income per vehicle is determined based on the rate of heavy vehicles, that is, INR 1,000 per ton per month. This gives a total presumptive income of INR 3,60,000 for all vehicles under Type A.
Type B Vehicle: These include 2 heavy goods carriages having a gross weight of 17,000 kg each, and were in use from the period 18th August to 22nd February. Using the same rate as that of heavy vehicles, the total presumptive income for Type B vehicles is INR 2,38,000.
Type C Vehicle: These include 4 light weight goods carriages. It is used from the period 7th April to 13th January and will be charged at a flat income rate of INR 7,500 per vehicle per month. This gives a total presumptive income of INR 3,00,000 for Type C vehicles.
Advantages of Opting for Section 44AE
Section 44AE offers following benefits for the taxpayers:
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The tax filing is very simplified for the taxpayers.
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Because of simplified tax filings the need for detailed record maintenance is eliminated.
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Section 44AE makes it easier for taxpayers to estimate their tax liabilities and thus compliance costs are reduced.
Compliance and Record-Keeping
Though Section 44AE does not require detailed book-keeping, transporters are expected to keep a track of vehicles and the duration of ownership or lease.
Following is the checklist for transporters for compliance under Section 44AE:
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The vehicle details must be maintained, like period of use, type of vehicle, period of ownership or lease, and likewise.
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The Income Tax Return must be submitted on time.
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The PAN details of the parties must be maintained in case the TDS is deducted while making payments.
Compliance issues may arise if eligibility criteria are overlooked and basic records are not maintained.
Section 44AE vs Section 44AD
Following are the points of distinction between Section 44AE and Section 44AD:
Frequently asked questions
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Explain Section 44AE.
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Section 44AE deals with the presumptive taxation of businesses engaged in the leasing, renting, or transporting goods carriages. The section allows for a simplified taxation scheme under which income is computed based on the number of vehicles owned by the transporter, instead based on the actual income earned.
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Who can opt for the presumptive taxation scheme under Section 44AE?
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Section 44AE can be opted by individuals, Hindu Undivided Families (HUFs), partnership firms excluding LLPs, and businesses engaged in the business of leasing, renting, or transporting goods carriages and having not more than 10 goods carriages at any point of time during the financial year.
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How is the income determined under Section 44AE?
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Under Section 44AE, the income is presumed on a per vehicle per month basis, regardless of the actual earnings. The amount is set by the government and is updated regularly.
Presently, the presumptive income for heavy weight vehicles is determined at INR 1,000 per ton per month, or a part thereof, of the vehicle’s gross weight or unladen weight.
For light-weight vehicles, the presumptive taxation income is INR 7,500 per vehicle per month, or part thereof.
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Are all goods vehicles covered under Section 44AE?
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Yes. Section 44AE covers all types of goods carriages, which includes trucks, lorries, and other commercial vehicles used for transportation of goods.
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Can actual expenses be claimed under Section 44AE?
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No. The transport taxpayers cannot claim actual expenses under Section 44AE. It is because the income is already determined by the presumptive taxation scheme. The scheme eliminates the need for maintaining detailed records of actual income and expenses.
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What happens in case the actual income is different from the presumed income under Section 44AE?
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Irrespective of the actual income being more or less, the income tax is computed based on the presumed income per vehicle mentioned in Section 44AE. The actual earnings are not relevant.
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Is it important to maintain books of accounts under Section 44AE?
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No. The taxpayers opting for Section 44AE are not required to maintain a detailed books of accounts for their goods carriage business.
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Can a taxpayer switch from the regular taxation to Section 44AE?
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Yes. The taxpayers are allowed to shift from the regular taxation scheme to Section 44AE, if they meet the eligibility criteria. This is irrespective of the previously followed tax scheme.
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Explain the benefits of Section 44AE.
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The primary benefit of Section 44AE includes simplified computation, elimination of detailed record keeping, and no requirement of audits if the income is declared within the prescribed rates.
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Can a taxpayer switch back to the regular taxation scheme after opting for Section 44AE?
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Yes. The taxpayers can revert to the regular taxation scheme in subsequent years. However, the said switch back is subject to certain conditions and restrictions.
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Are there any special conditions under Section 44AE for the newly established businesses?
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The newly established businesses can also take the benefit of Section 44AE starting from the first year of its operation. The presumptive income on per vehicle basis applies from the beginning of the business, which simplifies the tax compliance.
Prachi Jain
Chartered Accountant
Prachi Jain is a Chartered Accountant with a passion for simplifying finance and tax-related matters through her insightful and informative blogs. With a background in finance and a deep understanding of tax regulations, Prachi has established herself as a trusted source of financial wisdom. Prachi is committed to empowering her readers with the knowledge they need to make informed financial decisions. Her expertise and dedication shine through in every blog post, helping her audience navigate the intricacies of finance and taxes with confidence. Follow Prachi Jain's blog for practical insights and guidance on managing your finances effectively.
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