11 December 2015
All about Section 44AD of Income Tax Act, 1961
To give relief to small assesses, the Income-tax Law has incorporated a simple scheme commonly known as Presumptive Taxation Scheme. There are two schemes, viz., the scheme of section 44AD and the scheme of section 44AE. An assesses adopting these provisions is not required to maintain the regular books of account and is also exempt from getting the books of account audited. In this advance learning we will cover the provisions of the presumptive taxation scheme provided in section 44AD. The scheme of section 44AD is designed to give relief to small assesses engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE). The detailed provisions in this regard are as follows: Applicability of the scheme The provisions of section 44AD are applicable to such resident assesses who is an Individual, Hindu Undivided Family and Partnership Firm but not Limited Liability Partnership Firm. Unlike section 44AE, in case of section 44AD there is a restriction on which categories of assessees can opt for the scheme. Only specific categories of resident assessees as discussed above can opt for this scheme. Illustration Essem Pvt. Ltd., a private limited company is engaged in the manufacturing business. In this case, even though if the company satisfies all the criteria for adopting the provisions of section 44AD, it cannot opt for presumptive taxation schemes of section 44AD since these provisions cannot be adopted by an assessees being a private limited company. In other words, the presumptive taxation scheme of section 44AD can be adopted only by a resident assessees who is an Individual, 11indu Undivided Family and Partnership Firm (not Limited Liability Partnership Firm). Eligible business The presumptive taxation scheme under these provisions can be opted for by the eligible assessees who is engaged in any business (except the business of plying, hiring or leasing goods carriages referred to in section 44AE), whose turnover or gross receipts from such business do not exceed the limit of audit prescribed under section 44AB (i.e., Rs. 60,00,000 for the previous year 2011-12 and Rs. 1,00,00,000 from the previous year 2012-13). Further, these provisions can be adopted by the assessees only if he has not claimed deduction under section 10A/10AA/10B/10BA or under sections 801111 to 80RRB in the relevant year. Moreover, the provisions of section 44AD cannot be adopted by an assessees who is engaged in any profession as prescribed under section 44AA or is carrying on an agency business or is earning income in the nature of commission or brokerage. The important criteria of the scheme is the turnover or gross receipts from the eligible business. To opt for the scheme the turnover should not exceed Rs. 1,00,00,000. Illustration Mr. Soham is running a provision shop. The turnover of the shop for the previous year 20 12- 13is Rs. 99,00,000. Can he adopt the provisions of presumptive scheme of section 44AD in respect of this business? ** The provisions of section 44AD can be adopted by the eligible assessees who is engaged in any business (except the business of plying, hiring or leasing of goods carriages referred to in section 44AE and except by the assessees who is engaged in any profession as prescribed under section 44AA or is running agency business or is earning income in the nature of commission or brokerage). Further, turnover or gross receipts from such business should not exceed the limit of audit prescribed under section 44AB (i.e.,Rs. 1,00,00,000 for the previous year 2012-13). In this case Mr. Soham is running a provision shop whose turnover is Rs. 99,00,000 during the previous year 2012-13. Thus, he satisfied both the criteria of the scheme and, hence, he can adopt the provisions of section 44AD for his business of provision shop. Scheme of computation of income In case of an assessees who is willing to opt for these provisions, income will be computed on an estimated basis. The rate of computation of income on an estimated basis is 8% of turnover or gross receipts of the eligible business for the previous year. Illustration Mr. Shivam is a wholesale dealer of garments whose turnover during the previous year 2012-13 is Rs. 84,00,252. He wants to adopt the provisions of section 44AD in respect of this business. In this case what will be the income as per the provisions of section 44AD? ** As per the provisions of section 44AD, income will be computed on an estimated basis @ 8% of turnover or gross receipts of the eligible business for the previous year. In the present case Mr. Shivam is engaged in the business of wholesale dealership of garments whose turnover is Rs. 84,00,252 and, hence, his income as per the provisions of section 44AD will come to Rs. 6,72,020 (i.e, Rs. 84,00,252 * 8%). Provisions relating to various allowances/dis allowances Income computed as per section 44AD (i.e., @ 8% of turnover or gross receipts of the eligible business, for the previous year) will be net income for the business covered under this scheme. From the net income computed as above, an assessees is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation). Provisions in case of a partnership firm: An assessees, being a partnership firm, can claim further deduction of remuneration and interest paid to its partners within the limit specified under section 40(b). In other words, in case of an assessees, being a partnership firm, separate deduction from the net income computed as per presumptive taxation scheme in respect of remuneration and interest paid to its partners is allowed. Further, from income computed at the aforesaid rate, no dis allowance can be made under sections 40, 40A and 43B. Thus, in case of an assessees adopting the presumptive taxation scheme of section 44AD, no dis allowance under sections 40, 40A and 43B will apply. Illustration Mr. Shan is running a Bandhani Press. His gross receipts from this business during previous year 2012-13 is Rs. 84,25,250 and he declared income as per the provisions of section 44AD. After computing the income @ 8% of such gross receipts, he wants to claim further deduction on account of depreciation on the press building. Can he do so as per the provisions of section 44AD? ** As per the provisions of section 44AD, from the net income computed at the prescribed rate, i.e., @ 8% of turnover or gross receipts from the eligible business during the previous year, an assessees is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. Thus, in this case Mr. Shan cannot claim any further deduction from the net income of Rs. 6,74,020,i.e., @ 8% of gross receipts of Rs. 84,25,250. Illustration Essem Corporation, a partnership firm, is engaged in the business of wall clock manufacturing and declared income as per the provisions of section 44AD during the previous year 2012-13. After computing the income @ 8%, the firm wants to claim further deduction on account of remuneration and interest paid to its partners within the limit specified under section 40(b). Can the firm do so as per the provisions of section 44AD? ** As per the provisions of section 44AD, from the net income computed at the prescribed rate, i.e., @ 8%, an assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. However, in case of an assessee, being a partnership firm, further deduction on account of remuneration and interest paid to its partners within the limit specified under section 40(b) is allowed. Thus, in this case the firm can claim further deduction on account of remuneration and interest paid to its partners within the limit specified under section 40(b). Manner of computation of WDV of depreciable assets As discussed above, an assessees opting for the presumptive taxation scheme is not permitted to claim deduction on account of various expenditures including depreciation. As regards the computation of the WDV of depreciable asset, following provision should be kept in mind: Deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AD shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, even though no depreciation is available separately, yet for purpose of computation of the WDV of the asset, depreciation will be deducted. Illustration SM Corporation, a partnership firm, engaged in the business of cement manufacturing declared income as per the provisions of section 44AD during the previous year 2012-13. After computing the income @ 8%, the partners of the firm were of the opinion that in computing the WDV of the factory building owned by them depreciation will not be deducted since no deduction on account of the same was claimed. Is the contention of partners correct? ** As per the provisions of section 44AD, from the income computed as per the provisions of section 44AD, further deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AD shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, the contention of the partners is not correct. Even though no depreciation is claimed by the firm, yet for purpose of computation of the WDV of the asset, depreciation will be deducted from the value of the block. Provisions relating to maintenance of books of account The scheme gives a great relief to the assesses in respect of maintenance of books of account. An assesses, who adopts the provisions of section 44AD, is not required to maintain books of account as per section 44AA (applicable only for business covered by this section). Further, in respect of such business, the provisions of section 44AB (relating to audit) are also not applicable. Thus, the scheme relieves the assessee from the maintenance of regular books of account. Apart from giving relief from maintenance of books of account, the scheme also relieves the assessee from audit of books of account. Illustration Mr. Sipahi is running a medical store. The turnover of the business during the previous year 2012-13 is Rs. 25,84,252 and he declared income as per the provisions of section 44AD. In this case will he be liable to maintain the books of account in respect of aforesaid business? ** As per the provisions of section 44AD, an assessee who adopts the provisions of section 44AD, is not required to maintain books of account as per section 44AA. However, the relief is available only in respect of business covered by the provisions of section 44AD and not in respect of any other business. Thus, if Mr. Sipahi owns any other business, then in respect of such other business the provisions of section 44AA in respect of maintenance of books of account will apply. Declaration of lower income If the actual income from the business covered under section 44AD is lower than the income prescribed under the presumptive scheme, then the assesses can declare income from aforesaid business at a lower rate (i.e., at less than 8%). If the asses see does so, i.e., declares lower income and his actual income exceeds the maximum amount which is not chargeable to tax, then the relief from maintenance of books of account is not available and he is required to maintain the books of account as per section 44AA and further, he has to get such books of account audited as per section 44AB. Illustration Mr. Sashank is running a stationary mart. The turnover of the business during the previous year 2012-13 is Rs. 84,48,252. His actual income from this business is only Rs. 5,52,848 which is less than Rs. 6,75,860 (i.e., Rs. 84,48,252 * 8%). In this case can he declare actual income which is lower than the limit prescribed under section 44AD? ** As per the provisions of section 44AD, if the actual income from the business covered under section 44AD is lower than the income prescribed under the presumptive scheme, then the assessee can declare income from aforesaid business at a lower rate (i.e., at less than 8%). Thus, in this case Mr. Sashank can declare lower income. However, in this case he has to maintain the books of account prescribed under section 44AA and has to get such books of account audited, since in this case his actual income exceeds the exemption limit (i.e., Rs. 2,00,000). Declaration of higher income As regards the declaration of higher income, i.e., declaring income above the prescribed rate of 8%, the scheme permits the assessee to declare at his option higher income (i.e., higher than 8%). Illustration Mr. Saurabh is running a provision shop and the gross receipt of the business during the previous year 2012-13 is Rs. 24,48,252. His actual income is Rs. 2,84,848 which is higher than Rs. 1,95,860 (i.e., 8% * Rs. 24,48,252). In this case can he declare the actual income which is higher than the limit prescribed under section 44AD? ** As per the provisions of section 44AD, if the actual income from the business covered under section 44AD is higher than the income prescribed under the presumptive scheme, then the assesses has to declare such higher income from aforesaid business. Thus, in this case Mr. Saurabh can declare higher income. Applicability of Provisions of Advance Tax An assesses opting for the presumptive taxation scheme of section 44AD will not be liable to pay advance tax in respect of business covered under section 44AD. In other words, a person adopting the provisions of presumptive taxation scheme of section 44AD is not liable to pay advance tax in respect of the business covered under section 44AD. Illustration Mr. Saurabh is running a provision shop. The gross receipts of the shop for the previous year 2012-13 amounted to Rs. 54,48,252. He adopted the provisions of section 44AD and declared income @ 8% of the turnover.. Apart from income from provisions shop, he also earned commission of Rs. 4,52,848. In this case, he will not be liable to pay advance tax in respect of income from provisions shop even though the tax liability in respect of income from shop exceeds Rs. 10,000. However, as regards commission income, he will be liable to pay advance tax since the tax liability on commission income exceeds Rs. 10,000. FAQs 1. Who can adopt the presumptive taxation scheme as provided in section 44AD? The provisions of section 44AD are applicable to such resident assesses who is an Individual, 11indu Undivided Family and Partnership Firm but not Limited Liability Partnership Firm. Unlike section 44AE, in case of section 44AD there is a restriction on which categories of assessees can opt for the scheme. Only specific categories of resident assessees as discussed above can opt for this scheme. Illustration Essem Pvt. Ltd., a private limited company is engaged in the manufacturing business. In this case, even though if the company satisfies all the criteria for adopting the provisions of section 44AD, it cannot opt for presumptive taxation schemes of section 44AD since these provisions cannot be adopted by an assesses being a private limited company. In other words, the presumptive taxation scheme of section 44AD can be adopted only by a resident assesses who is an Individual, 11indu Undivided Family and Partnership Firm (not Limited Liability Partnership Firm). 2. What is the eligible business as provided in section 44AD? The presumptive taxation scheme under these provisions can be opted for by the eligible assesses who is engaged in any business (except the business of plying, hiring or leasing goods carriages referred to in section 44AE), whose turnover or gross receipts from such business do not exceed the limit of audit prescribed under section 44AB (i.e., Rs. 60,00,000 for the previous year 2011-12 and Rs. 1,00,00,000 from the previous year 2012-13). Further, these provisions can be adopted by the assesses only if he has not claimed deduction under section 10A/10AA/10B/10BA or under sections 801111 to 80RRB in the relevant year. Moreover, the provisions of section 44AD cannot be adopted by an assesses who is engaged in any profession as prescribed under section 44AA or is carrying on an agency business or is earning income in the nature of commission or brokerage. The important criteria in the scheme is the turnover or gross receipts from the eligible business. To opt for the scheme, the turnover should not exceed Rs. 1,00,00,000. Illustration Mr. Soham is running a provision shop. The turnover of the shop for the previous year 2012-13 is Rs. 99,00,000. Can he adopt the provisions of presumptive scheme of section 44AD in respect of this business? ** The provisions of section 44AD can be adopted by the eligible assesses who is engaged in any business (except the business of plying, hiring or leasing goods carriages referred to in section 44AE and except by the assesses who is engaged in any profession as prescribed under section 44AA or is running agency business or is earning income in the nature of commission or brokerage). Further, turnover or gross receipts from such business should not exceed the limit of audit prescribed under section 44AB (i.e., Rs. 1,00,00,000 for the previous year 2012-13). In this case Mr. Soham is running a provision shop whose turnover is Rs. 99,00,000 during the previous year 2012-13. Thus, he satisfied both the criteria of the scheme and hence, he can adopt the provisions of section 44AD for his business of provision shop. 3. What is the manner of computation of income under the presumptive taxation scheme as provided in section 44AD? In case of an assesses who is willing to opt for these provisions, income will be computed on an estimated basis. The rate of computation of income on an estimated basis is 8% of turnover or gross receipts of the eligible business, for the previous year. Illustration Mr. Shivam is a wholesale dealer of garments whose turnover during the previous year 2012-13 is Rs. 84,00,252. He wants to adopt the provisions of section 44AD in respect of this business. In this case what will be the income as per the provisions of section 44AD? ** As per the provisions of section 44AD, income will be computed on an estimated basis @ 8% of turnover or gross receipts of the eligible business, for the previous year. In the present case Mr. Shivam is engaged in the business of wholesale dealership of garments whose turnover is Rs. 84,00,252 and hence, his income as per the provisions of section 44AD will come to Rs. 6,72,020 (i.e. Rs. 84,00,252 * 8%). 4. What are the provisions relating to various allowances/dis allowances in case of an assessees adopting the presumptive taxation scheme as provided in section 44AD? Income computed as per section 44AD (i.e., @ 8% of turnover or gross receipts of the eligible business, for the previous year) will be net income for the business covered under this scheme. From the net income computed as above, an assesses is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation). Provisions in case of a partnership firm: It should be noted that an assesses, being a partnership firm, can claim further deduction of remuneration and interest paid to its partners within the limit specified under section 40(b). In other words, in case of an assesses being a partnership firm, separate deduction from the net income computed as per presumptive taxation scheme in respect of remuneration and interest paid to its partners is allowed. Further, from income computed at the aforesaid rate, no dis allowance can be made under sections 40, 40A and 43B. Thus, in case of an assesses adopting the presumptive taxation scheme of section 44AD, no dis allowance under sections 40, 40A and 43B will apply. Illustration Mr. Shan is running a Bandhani Press. His gross receipts from this business during previous year 2012-13 is Rs. 84,25,250 and declared income as per the provisions of section 44AD. After computing the income @ 8% of such gross receipts, he wants to claim further deduction on account of depreciation on the press building. Can he do so as per the provisions of section 44AD? ** As per the provisions of section 44AD, from the net income computed at the prescribed rate, i.e., @ 8% of turnover or gross receipts from the eligible business during the previous year, an assesses is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. Thus, in this case Mr. Shan cannot claim any further deduction from the net income of Rs. 6,74,020 i.e., @ 8% of gross receipts of Rs. 84,25,250. Illustration Essem Corporation, a partnership firm is engaged in the business of wall clock manufacturing and declared income as per the provisions of section 44AD during the previous year 2012-13. After computing the income @ 8%, the firm wants to claim further deduction on account of remuneration and interest paid to its partners within the limit specified under section 40(b). Can the firm do so as per the provisions of section 44AD? ** As per the provisions of section 44AD, from the net income computed at the prescribed rate, i.e., @ 8%, an assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. However, in case of an assessee, being a partnership firm, further deduction on account of remuneration and interest paid to its partners within the limit specified under section 40(b) is allowed. Thus, in this case the firm can claim further deduction on account of remuneration and interest paid to its partners within the limit specified under section 40(b). 5. What is the manner of computation of WDV of depreciable assets in case of an assesses who is adopting the presumptive taxation scheme as provided in section 44AD? As discussed above, an assesses opting for the presumptive taxation scheme is not permitted to claim deduction on account of various expenditures including depreciation. In this context, as regards the computation of the WDV of depreciable asset, following provision should be kept in mind: Deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AD shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, even though no depreciation is available separately, yet for purpose of computation of the WDV of the asset, depreciation will be deducted. Illustration SM Corporation, a partnership firm is engaged in the business of cement manufacturing and declared income as per the provisions of section 44AD during the previous year 2012-13. After computing the income @ 8%, the partners of the firm is of the opinion that in computing the WDV of the factory building owned by them depreciation will not be deducted since no deduction on account of the same is claimed. Is the contention of partners correct? ** As per the provisions of section 44AD, from the income computed as per the provisions of section 44AD, further deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AD shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, the contention of the partners is not correct. Even though no depreciation is claimed by the firm, yet for purpose of computation of the WDV of the asset, depreciation will be deducted from the value of the block. 6. What are the provisions relating to maintenance of books of account in case of an assesses who is adopting the presumptive taxation scheme as provided in section 44AD? The scheme gives a great relief to the assesses in respect of maintenance of books of account. An assesses, who adopts the provisions of section 44AD, is not required to maintain books of account as per section 44AA (applicable only for business covered by this section). Further, in respect of such business, the provisions of section 44AB (relating to audit) are also not applicable. Thus, the scheme relieves the assesses from the maintenance of regular books of account. Apart from giving relief from maintenance of books of account, the scheme also relieves the assesses from audit of books of account. Illustration Mr. Sipahi is running a medical store. The turnover of this business during the previous year 2012-13 is Rs. 25,84,252 and declared income as per the provisions of section 44AD. In this case will he be liable to maintain the books of account in respect of aforesaid business? ** As per the provisions of section 44AD, an assessee who adopts the provisions of section 44AD, is not required to maintain books of account as per section 44AA. However, it should be noted that the relief is available only in respect of business covered by the provisions of section 44AD and not in respect of any other business. Thus, if Mr. Sipahi owns any other business, then in respect of such other business the provisions of section 44AA in respect of maintenance of books of account will apply. 7. Can an assesses adopting the presumptive taxation scheme as provided in section 44AD declare lower income? If the actual income from the business covered under section 44AD is lower than the income prescribed under the presumptive scheme, then the assesses can declare income from aforesaid business at a lower rate (i.e., at less than 8%). If the assesses does so, i.e. declares lower income and his actual income exceeds the maximum amount which is not chargeable to tax, then the relief from maintenance of books of account is not available and he is required to maintain the books of account as per section 44AA and further, he has to get such books of account audited as per section 44AB. Illustration Mr. Sashank is running a stationary mart. The turnover of the business during the previous year 2012-13 is Rs. 84,48,252. His actual income from this business is only Rs. 5,52,848 which is less than Rs. 6,75,860 (i.e., Rs. 84,48,252 * 8%). In this case can he declare actual income which is lower than the limit prescribed under section 44AD? ** As per the provisions of section 44AD, if the actual income from the business covered under section 44AD is lower than the income prescribed under the presumptive scheme, then the assessee can declare income from aforesaid business at a lower rate (i.e., at less than 8%). Thus, in this case Mr. Sashank can declare lower income. However, in this case he has to maintain the books of account prescribed under section 44AA and has to get such books of account audited as his actual income exceeds the exemption limit (i.e., Rs. 2,00,000). 8. Can an assesses adopting the presumptive taxation scheme as provided in section 44AD declare higher income? As regards the declaration of higher income, i.e. declaring income above the prescribed rate of 8%, the scheme permits the assesses to declare at his option higher income (i.e., higher than 8%). Illustration Mr. Saurabh is the proprietor of provision shop and the gross receipts of this business during the previous year 2012-13 is Rs. 24,48,252. But his actual income is Rs. 2,84,848 which is higher than Rs. 1,95,860 (i.e., 8% * Rs. 24,48,252). In this case can he declare income above the limit prescribed under section 44AD? ** As per the provisions of section 44AD, if the actual income from the business covered under section 44AD is higher than the income prescribed under the presumptive scheme, then the assesses has to declare such higher income from aforesaid business. Thus, in this case Mr. Saurabh can declare higher income. 9. What are the provisions relating to payment of advance tax in case of an assesses who is adopting the presumptive taxation scheme as provided in section 44AD? An assesses opting for the presumptive taxation scheme of section 44AD will not be liable to pay advance tax in respect of business covered under section 44AD. In other words, a person adopting the provisions of presumptive taxation scheme of section 44AD is not liable to pay advance tax in respect of the business covered under section 44AD. Illustration Mr. Saurabh is running a provision shop. The gross receipts of the shop for the previous year 2012-13 amounted to Rs. 54,48,252. He adopted the provisions of section 44AD and declared income @ 8% of the turnover.. Apart from income from provisions shop, he also earned commission of Rs. 4,52,848. In this case, he will not be liable to pay advance tax in respect of income from provisions shop even though the tax liability in respect of income from shop exceeds Rs. 10,000. However, as regards commission income, he will be liable to pay advance tax since the tax liability on commission income exceeds Rs. 10,000.
11 December 2015
All about Section 44AE of Income Tax Act, 1961
To give relief to small assessees, the Income-tax Law has incorporated a simple scheme commonly known as Presumptive Taxation Scheme. There are two schemes viz. the scheme of section 44AD and the scheme of section 44AE. An assessee adopting these provisions is not required to maintain the regular books of account and also exempt from getting the accounts audited. In this advance learning we will cover the provisions of the presumptive taxation scheme provided in section 44AE. The scheme of section 44AE is designed to give relief to small assessees engaged in the business of goods carriage. The detailed provisions in this regard are as follows: To whom the provisions of section 44AE are applicable? Applicability of the scheme The provisions of section 44AE are applicable to every person (i.e., an individual, HUF, firm, company, etc.). Unlike section 44AD, in case of section 44AE there is no restriction on which categories of assessees can opt for the scheme.. All sorts of assessees can opt from this scheme. Which business is eligible for the purpose of scheme prescribed under section 44AE? Eligible business The presumptive taxation scheme under these provisions can be opted for by an assessee who is engaged in the business of plying, hiring or leasing goods carriages and does not own more than ten goods vehicles at any time during the previous year. The important criteria in this scheme is the restriction of owning more than 10 goods vehicles at any time during the previous year. Thus, if an assessee is owning more than 10 goods vehicles during the year, then such an assessee cannot adopt this scheme. Further, this scheme can be adopted only by the assessees who are engaged in the business of plying, hiring or leasing goods carriages. Thus, an assessee engaged in the business of passenger transport cannot adopt these provisions. Illustration Mr. Kumar engaged in the business of plying, hiring or leasing goods carriages owns 9 goods vehicles during the previous year 2014-15. Can he adopt the provisions of presumptive scheme of section 44AE in respect of this business? ** The provisions of section 44AE can be adopted by an assessee who is engaged in the business of plying, hiring or leasing of goods carriages and does not own more than ten goods vehicles at any time during the previous year. In this case Mr. Kumar owned only 9 vehicles during the year, thus, he satisfied both the criteria of the scheme and hence, he can adopt the provisions of section 44AE for his business of plying, hiring or leasing goods carriages. How presumptive income is computed under section 44AE? Scheme of computation of income In case of an assessee who is willing to opt for these provisions, income will be computed on an estimated basis. The rate of computation of income on estimate basis is as follows : In respect of heavy goods vehicle : In respect of heavy goods vehicle income will be computed @ Rs. 5,000 per month or part thereof during which the heavy goods vehicle is owned by the assessee, during the previous year. From Assessment Year 2015-16 i.e. Financial Year 2014-15 the same is been increased to Rs. 7500/- per month and differentiation between Heavy and other good vehicles been removed. In respect of other goods vehicle : In case of any other goods vehicle (i.e. other than heavy goods vehicle) income will be computed @ Rs. 4,500 per month or part thereof during which the goods vehicle is owned by the assessee during the previous year. From Assessment Year 2015-16 i.e. Financial Year 2014-15 the same is been increased to Rs. 7500/- per month and differentiation between Heavy and other good vehicles been removed. Meaning of Goods vehicle (carriage) and heavy goods vehicle: The expressions “goods carriage” and “heavy goods vehicle” shall have the meanings respectively assigned to them in section 2 of the Motor Vehicles Act, 1988 Clause (14) and clause (16) of section 2 of the Motor Vehicles Act, 1988, define “goods carriage” and “heavy goods vehicle”, respectively, as follows : “Goods carriage” means any motor vehicle constructed or adapted for use solely for the carriage of goods, or any motor vehicle not so constructed or adapted when used for the carriage of goods; “Heavy goods vehicle” means any goods carriage the gross vehicle weight of which, or a tractor or a road-roller the unladen weight of either of which, exceeds 12,000 kilograms;’ Illustration Mr. Khush engaged in the business of plying, hiring or leasing goods carriages owns 8 goods vehicles (heavy goods vehicles) during the previous year 2014-15. He wants to adopt the provisions of section 44AE in respect of this business. In this case what will be the income as per the provisions of section 44AE? ** As per the provisions of section 44AE, in respect of heavy goods vehicle income will be computed @ Rs. 7,500 per month or part thereof during which the heavy goods vehicle is owned by the assessee, during the previous year. In the present case Mr. Khush owned 8 heavy goods vehicles during the year and, hence, income will be computed as follows : Particulars Rs. Income per month per heavy goods vehicle 7,500 (×) No. of goods vehicle 8 Monthly income as per the provisions of section 44AE 60,000 (×) No. of months in a year 12 Total income as per the provisions of section 44AE 7,20,000 Illustration Mr. Khushal engaged in the business of plying, hiring or leasing goods carriages owns 6 goods vehicles (light goods vehicles) during the previous year 2012-13. He wants to adopt the provisions of section 44AE in respect of this business. In this case what will be the income as per the provisions of section 44AE? ** As per the provisions of section 44AE, in respect of goods vehicle (other than heavy goods vehicle) income will be computed @ Rs. 4,500 per month or part thereof during which the goods vehicle is owned by the assessee, during the previous year. In the present case Mr. Khushal owned 6 goods vehicles during the year and, hence, income will be computed as follows: Particulars Rs. Income per month per goods vehicle (other than heavy vehicle) 4,500 (x) No. of goods vehicle 6 Monthly income as per the provisions of section 44AE 27,000 (x) No. of months in a year 12 Total income as per the provisions of section 44AE 3,24,000 Illustration Miss. Khushali engaged in the business of plying, hiring or leasing goods carriages owns 4 goods vehicles (light goods vehicles) and 5 heavy goods vehicles during the previous year 2012-13. She wants to adopt the provisions of section 44AE in respect of this business. In this case what will be the income as per the provisions of section 44AE? ** As per the provisions of section 44AE, in respect of goods vehicle (other than heavy goods vehicle) income will be computed @ Rs. 4,500 per month or part thereof during which the goods vehicle (other than heavy goods vehicle) is owned by the assessee during the previous year. In respect of heavy goods vehicle income will be computed @ Rs. 5,000 per month or part thereof during which the heavy goods vehicle is owned by the assessee during the previous year. In the present case Miss. Khushali owned 4 light vehicles and 5 heavy goods vehicles during the year and, hence, income will be computed as follows : Particulars Rs. Income per month per goods vehicle (other than heavy vehicle) 4,500 (x) No. of goods vehicle 4 Monthly income as per the provisions of section 44AE 18,000 (x) No. of months in a year 12 Total income as per the provisions of section 44AE from goods vehicles (other than heavy goods vehicles) (A) 2,16,000 Income per month per heavy goods vehicle 5,000 (x) No. of heavy goods vehicle 5 Monthly income as per the provisions of section 44AE 25,000 (x) No. of months in a year 12 Total income as per the provisions of section 44AE from heavy goods vehicles (B) 3,00,000 Total income from business of plying, hiring or leasing goods carriages as per the provisions of section 44AE (A + B) 5,16,000 What are the provisions relating to various allowances/disallowances in case of an assessee opting for the scheme of section 44AE? Provisions relating to various allowances/disallowances Income computed as above (i.e., @ Rs. 4,500 per month /Rs. 5,000 per month/Rs. 7,500/- per month) will be net income for the business covered under this scheme. From the net income computed as above, assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation). Provisions in case of a partnership firm It should be noted that an assessee, being a partnership firm, can claim further deduction of remuneration and interest to its partners within the limit specified under section 40(b). In other words, in case of an assessee being a partnership firm, separate deduction from the net income computed as per presumptive taxation scheme in respect of remuneration and interest paid to partners is allowed. Further, from income computed at the aforesaid rate, no disallowance can be made under sections 40, 40A and 43B. Thus, in case of an assessee adopting the presumptive taxation scheme of section 44AE, no disallowance under section sections 40, 40A and 43B will apply. Illustration Mr. Kapoor is engaged in the business of plying, hiring or leasing goods carriages. He owned 8 goods vehicles during the previous year 2014-15 and declared income as per the provisions of section 44AE. After computing the income @ Rs. 7,500 per month, he wants to claim further deduction on account of depreciation on the goods vehicle. Can he do so as per the provisions of section 44AE? ** As per the provisions of section 44AE, from the net income computed at the prescribed rate, i.e., Rs. 7,500 per month, assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. Thus, in this case Mr. Kapoor cannot claim any further deduction from the net income computed @ Rs. 7,500/- per month. Illustration SM Transport Corporation a partnership firm is engaged in the business of plying, hiring or leasing goods carriages and owned 6 heavy goods vehicles during the previous year 2014-15 and declared income as per the provisions of section 44AE. After computing the income @ Rs. 7,500 per month, the firm wants to claim further deduction on account of remuneration and interest to its partners within the limit specified under section 40(b). Can the firm do so as per the provisions of section 44AE? ** As per the provisions of section 44AE, from the net income computed at the prescribed rate, i.e., Rs. 7,500 per month, assessee is not permitted to claim any deduction under sections 30 to 38 (including depreciation or unabsorbed depreciation) from such income. However, in case of an assessee, being a partnership firm, further deduction on account of remuneration and interest to its partner within the limit specified under section 40(b) is allowed. Thus, in this case the firm can claim further deduction on account of remuneration and interest to its partners within the limit specified under section 40(b). What is the manner of computation of WDV of depreciable assets in case of an assessee opting for the scheme of section 44AE? Manner of computation of WDV of depreciable assets As discussed above, an assessee opting for the presumptive taxation scheme is not permitted to claim deduction on account of various expenditures including depreciation. In this context, as regards the computation of the WDV of depreciable asset, following provision should be kept in mind : Deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AE shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, even though no depreciation is available separately, yet for purpose of computation of the WDV of the asset depreciation will be deducted. Illustration Essem Transport Corporation a partnership firm is engaged in the business of plying, hiring or leasing goods carriages and owned 8 heavy goods vehicles during the previous year 2014-15 and declared income as per the provisions of section 44AE. After computing the income @ Rs. 7,500 per month, the partners of the firm are of the opinion that in computing the WDV of the vehicles owned by them depreciation will not be deducted since no deduction on account of the same is claimed. Is the contention of partners correct? ** As per the provisions of section 44AE, from the income computed as per the provisions of section 44AE, further deduction on account of depreciation is not available. However, the WDV of any asset used in the business covered under the scheme of section 44AE shall be calculated as if depreciation as per section 32 is claimed and allowed. Thus, the contention of the partner is not correct. Even though no depreciation is claimed by the firm, yet for purpose of computation of the WDV of the asset, depreciation will be deducted from the value of the block. What are the provisions relating to maintenance of books of account in case of an assessee opting for the scheme of section 44AE? Provisions relating to maintenance of books of account The scheme gives a great relief to the assessee in respect of maintenance of books of account. An assessee, who adopts above provision, is not required to maintain books of account as per section 44AA (applicable only for business covered by this section). Further, in respect of such business, the provisions of section 44AB (relating to audit) are also not applicable. Thus, the scheme relieves the assessee from the maintenance of regular books of account. Apart from giving relief from maintenance of books of account, the scheme also relieves the assessee from audit of account. Illustration Mr. Kaushal is engaged in the business of plying, hiring or leasing goods carriages. He owned 8 goods vehicles during the previous year 2014-15 and declared income as per the provisions of section 44AE. In this case will he be liable to maintain the books of account in respect of aforesaid business? ** As per the provisions of section 44AE an assessee who adopts above provision is not required to maintain books of account as per section 44AA (applicable only for business covered by this section). However, it should be noted that the relief is available only in respect of business covered by the provisions of section 44AE and not in respect of any other business. Thus, if Mr. Kaushal owns any other business, then in respect of such business the provisions of section 44AA in respect of maintenance of books of account will apply. Can an assessee covered by section 44AE declare lower income as compared to income specified in section 44AE?
Declaration of lower income If the actual income from the business covered under section 44AE is lower than the income prescribed under the presumptive scheme, then the assessee can declare income from aforesaid business at a lower rate. If the assessee does so, i.e., declares lower income, then the relief from maintenance of account in not available and he is required to maintain the books of account as per section 44AA and further, he has to get such books of account audited as per section 44AB. Illustration Mr. Kaushal is engaged in the business of plying, hiring or leasing goods carriages and owned 8 heavy goods vehicles during the previous year 2014-15. His actual income per goods vehicle per month is less than Rs. 7,500. In this case can he declare income lower than the limit prescribed under section 44AE? ** As per the provisions of section 44AE, if the actual income from the business covered under section 44AE is lower than the income prescribed under the presumptive scheme, then the assessee can declare income from aforesaid business at a lower rate (i.e., at less than Rs. 7,500). Thus, in this case Mr. Kaushal can declare lower income. However, in this case he has to maintain the books of account prescribed under section 44AA and has to get the account audited. Can an assessee covered by section 44AE declaration higher income as compared to income specified in section 44AE? Declaration of higher income As regards the declaration of higher income, i.e., declaring income above the prescribed rate of Rs. 7,500 per month, the scheme permits the assessee to declare at his option higher income (i.e., higher than Rs. 7,500). Illustration Mr. Kamal is engaged in the business of plying, hiring or leasing goods carriages and owned 9 goods vehicles during the previous year 2014-15. His actual income per goods vehicle per month is more than Rs. 7,500. In this case can he declare income above the limit prescribed under section 44AE? ** As per the provisions of section 44AE, if the actual income from the business covered under section 44AE is higher than the income prescribed under the presumptive scheme, then the assessee has to declare such higher income from aforesaid business. Thus, in this case Mr. Kamal can declare higher income.
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