Introduction
Are you looking to understand about A Comprehensive Guide to Understanding Special Provision for Computing Profits and Gains of Business of Plying, Hiring, or Leasing Goods Carriages under Section 44AE of Income Tax Act 1961 ?
This detailed article will tell you all about A Comprehensive Guide to Understanding Special Provision for Computing Profits and Gains of Business of Plying, Hiring, or Leasing Goods Carriages under Section 44AE of Income Tax Act 1961.
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Section 44AE of the Income Tax Act 1961 is a special provision that provides a simplified method for computing the profits and gains of businesses involved in plying, hiring, or leasing goods carriages. This section applies to individuals, Hindu Undivided Families (HUFs), and partnership firms that own not more than 10 goods carriages and are engaged in the business of plying, hiring, or leasing such goods carriages.
The provision allows businesses to compute their income on a presumptive basis without maintaining detailed books of accounts. This saves them time, effort, and money that would otherwise have been spent on maintaining books of accounts and getting them audited. In this blog, we will take a closer look at Section 44AE and its implications for businesses.
Who Can Avail the Benefits of Section 44AE?
To avail the benefits of Section 44AE, a business must meet the following criteria:
- The business must own not more than 10 goods carriages at any time during the previous year.
- The business must be engaged in the business of plying, hiring, or leasing goods carriages.
- The goods carriages must not be used for any purpose other than for the business of plying, hiring, or leasing.
If a business meets these criteria, it can opt to compute its income on a presumptive basis under Section 44AE.
How is Income Computed Under Section 44AE?
Under Section 44AE, the income of a business is computed on a presumptive basis based on the number of goods carriages owned by the business. The presumptive income is calculated as follows:
- For goods carriages with a gross vehicle weight (GVW) of up to 12,000 kg: Rs. 7,500 per month per vehicle or part of a month in case the vehicle was owned for less than a month.
- For goods carriages with a GVW exceeding 12,000 kg: Rs. 1,000 per ton of gross vehicle weight per month or part of a month in case the vehicle was owned for less than a month.
For example, if a business owns 5 goods carriages with a GVW of up to 12,000 kg and 2 goods carriages with a GVW exceeding 12,000 kg, its presumptive income for the year would be calculated as follows:
- For 5 goods carriages with a GVW of up to 12,000 kg: 5 x Rs. 7,500 x 12 = Rs. 4,50,000
- For 2 goods carriages with a GVW exceeding 12,000 kg: 2 x GVW x Rs. 1,000 x 12 = Rs. [insert amount]
The total presumptive income for the year would be the sum of the above amounts.
What are the Benefits of Computing Income Under Section 44AE?
There are several benefits to computing income under Section 44AE:
- Simplified method: Businesses can compute their income on a presumptive basis without maintaining detailed books of accounts. This saves them time, effort, and money that would otherwise have been spent on maintaining books of accounts and getting them audited.
- Lower tax liability:
Businesses can benefit from a lower tax liability as the presumptive income calculated under Section 44AE is lower than the actual income that may have been earned. This is because the presumptive income is calculated based on a fixed amount per vehicle, whereas the actual income may vary depending on various factors such as the number of trips made, distance travelled, and freight charges.
No requirement of tax audit: Businesses that opt to compute their income under Section 44AE are not required to get their accounts audited under Section 44AB. This saves them the hassle and cost of getting their accounts audited.
Avoidance of penalties: As businesses are not required to maintain detailed books of accounts and get them audited, they can avoid penalties for non-compliance with the provisions of the Income Tax Act.
Increased compliance: Section 44AE encourages businesses to comply with the provisions of the Income Tax Act by providing a simplified method for computing income. This can lead to increased compliance and a reduction in tax evasion.
What are the Limitations of Computing Income Under Section 44AE?
While computing income under Section 44AE has several benefits, there are also some limitations that businesses should be aware of:
Presumptive income cannot be less than Rs. 7,500 per month per vehicle: Businesses that own goods carriages with a GVW of up to 12,000 kg must declare a presumptive income of at least Rs. 7,500 per month per vehicle, even if their actual income is lower than this amount.
No deduction for expenses: Businesses that opt to compute their income under Section 44AE cannot claim any deduction for expenses such as repairs and maintenance, depreciation, and interest on loans.
Inability to carry forward losses: Businesses that opt to compute their income under Section 44AE cannot carry forward any losses incurred during the year to subsequent years.
No option to revise income: Once a business has opted to compute its income under Section 44AE, it cannot revise its income at a later date.
FAQs
Q: Can businesses that own more than 10 goods carriages opt to compute their income under Section 44AE? A: No, businesses that own more than 10 goods carriages cannot avail the benefits of Section 44AE. They must maintain detailed books of accounts and get them audited under Section 44AB.
Q: Can businesses that opt to compute their income under Section 44AE claim any deduction for expenses? A: No, businesses that opt to compute their income under Section 44AE cannot claim any deduction for expenses such as repairs and maintenance, depreciation, and interest on loans.
Q: Can businesses that opt to compute their income under Section 44AE carry forward losses incurred during the year to subsequent years? A: No, businesses that opt to compute their income under Section 44AE cannot carry forward any losses incurred during the year to subsequent years.
Conclusion
Section 44AE of the Income Tax Act 1961 provides a simplified method for computing the profits and gains of businesses involved in plying, hiring, or leasing goods carriages. Businesses that meet the criteria can opt to compute their income on a presumptive basis without maintaining detailed books of accounts. While computing income under Section 44AE has several benefits, businesses should also be aware of its limitations. Overall, Section 44AE encourages businesses to comply with the provisions of the Income Tax Act and can lead to increased compliance and a reduction in tax evasion.
Section 44AE, of Income Tax Act, 1961
Section 44AE, of Income Tax Act, 1961 states that
(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 is higher;
(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 is higher.
(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 section 44AB.
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 instalments 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.