Presumptive Taxation Scheme under Section 44AE

Section 44AE is as follows:

44AE. (1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee, who owns not more than ten goods carriages at any time during the previous year and who is engaged in the business of plying, hiring or leasing such goods carriages, the income of such business chargeable to tax under the head "Profits and gains of business or profession" shall be deemed to be the aggregate of the profits and gains, from all the goods carriages owned by him in the previous year, computed in accordance with the provisions of sub-section (2).

[(2) For the purposes of sub-section (1), the profits and gains from each goods carriage,

(i) being a heavy goods vehicle, shall be an amount equal to one thousand rupees per ton of gross vehicle weight or unladen weight, as the case may be, for every month or part of a month during which the heavy goods vehicle is owned by the assessee in the previous year or an amount claimed to have been actually earned from such vehicle, whichever ishigher;

(ii) other than heavy goods vehicle, shall be an amount equal to seven thousand five hundred rupees for every month or part of a month during which the goods carriage is owned by the assessee in the previous year or an amount claimed to have been actually earned from such goods carriage, whichever ishigher.]

(3) Any deduction allowable under the provisions of sections 30 to 38 shall, for the purposes of sub-section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed:

Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under sub-section (1) subject to the conditions and limits specified in clause (b) of section 40.

(4) The written down value of any asset used for the purpose of the business referred to in sub-section (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years.

(5) The provisions of sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in sub-section (1) and in computing the monetary limits under those sections, the gross receipts or, as the case may be, the income from the said business shall be excluded.

(6) Nothing contained in the foregoing provisions of this section shall apply, where the assessee claims and produces evidence to prove that the profits and gains from the aforesaid business during the previous year relevant to the assessment year commencing on the 1st day of April,1997 or any earlier assessment year, are lower than the profits and gains specified in sub-sections (1) and (2), and thereupon the Assessing Officer shall proceed to make an assessment of the total income or loss of the assessee and determine the sum payable by the assessee on the basis of assessment made under sub-section (3) of section 143.

(7) Notwithstanding anything contained in the foregoing provisions of this section, an assessee may claim lower profits and gains than the profits and gains specified in sub- sections (1) and (2), if he keeps and maintains such books of account and other documents as required under sub-section (2) of section 44AA and gets his accounts audited and furnishes a report of such audit as required under section44AB.

Explanation. - For the purposes of this section, -

[(a) the expressions "goods carriage", "gross vehicle weight" and "unladen weight" shall have the respective meanings assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988);

(aa) the expression "heavy goods vehicle" means any goods carriage, the gross vehicle weight of which exceeds 12000 kilograms;]

(b) an assessee, who is in possession of a goods carriage, whether taken on hire purchase or on installments and for which the whole or part of the amount payable is still due, shall be deemed to be the owner of such goods carriage.

All other deduction deemed to be allowed: [Section 44AE(3)]The assessee will be deemed to have been allowed the deductions under sections 30 to 38. Accordingly, the written down value of any asset used for the purpose of the business of the assessee will be deemed to have been calculated as if the assessee had claimed and had actually been allowed the deduction in.

Salary and interest to partners is allowed: Where the assesse is a firm, the salary and interest paid to its partner are allowed to be deducted subject to the conditions and limit specified under section40(b).

No disallowance: Since no expenditure is allowed as a deduction thus for an assessee covered by the provisions of Sec 44AD or AE, there will be no disallowance u/s 43B, 40A(2), 40A(3) or 40a

Advance Tax: Such an assessee covered by Sec 44AE has no special provision under advance tax and will thus be required to pay advance tax on all four dates prescribed u/s211

Computation of WDV: Since depreciation and carry forward of unabsorbed depreciation is covered by Sec 32, depreciation shall not be allowed from the deemed Income, however a notional depreciation is provided in the Block to arrive at the opening WDV of the nextyear

Sec 70-80 will be applicable to the deemed income: The brought forward losses of this business or any other business and current year losses from other businesses & other heads shall be allowed to be set off from the deemed income subject to rules framed under the Income Tax Act for ― set off and carry forw ard‖ of losses

Deduction u/s 80C to 80U will be given from GTI of the assessee even from the deemed income included in the GTI.

Turnover not relevant: There is no condition on turnover for the applicability of Sec 44AE, thus where the assessee owns less than or equal to 10 trucks throughout the year then it can opt for Section 44AE even if the gross receipts or turnover is more than 60 lacs.

Can assessee apply Sec 44AE selectively on some trucks? CIT v Kunhi Mohammed [2005] (HC): Sec 44AE does not permit the assessee to apply the provisions of this section on some of the truck while he claims the income from the others as per the books prepared. Thus this section applies to all the trucks owned by the assessee. He may opt for or out of the provisions of this Section for all the trucks.

(i) Opts for Sec 44AE: for an assessee covered by this section there is no requirement to maintain Books of accounts(Sec 44AA) or to get the audit done (Sec44AB)

(ii) Where assessee opts out and claims lower income: Assessee can claim that his income is less than presumptive income u/s 44AE and in that case he will have to maintain books of accounts and he gets his books of accounts audited only if the income is more than the minimum exemptionslab

Example: turnover is 45 Lacs Expenditure as per Sec 30-38 is 42 Lacs. Income is 3 lacs

Income as per Sec 44AE = 360,000

Thus in this case the assessee may opt out and declare income of 3 lacs will compulsorily be covered by Sec 44AA & Sec 44AB

Example: turnover is 45 Lacs Expenditure as per Sec 30-38 is 44 Lacs. Income is 1 lacs

Income as per Sec 44AE = 360,000

Thus in this case the assessee may opt out and declare income of 1 lacs it will compulsorily be covered by Sec 44AA & Sec 44AB

Can the assessee claim higher income?

The assessee can declare a higher income by opting out of the provisions of Sec 44AE. In such a case the income will be computed as per rules given u/s 28 –44.

Example: turnover is 45 Lacs Expenditure as per Sec 30-38 is 41 Lacs. Income is 4 lacs

Income as per Sec 44AE = 360,000

Thus in this case the assessee may opt out and declare income of 4 lacs it will not be covered by Sec 44AA & Sec 44AB

Example: Mr A owns 8 goods carriage vehicles, 3 of which have unladen weight of 15MT, 18MT and 20MT and the rest are below 12MT capacity. The vehicle with 20MT was purchased on 22/07/19 and was used only from 21/01/2020