Business of plying, hiring or leasing goods carriage has two options to calculate it’s business income. It can either choose the normal method of calculating business income by preparing books of account, profit and loss account and balance sheet or choose the presumptive taxation scheme to estimate income under section 44AE.
If you are opting for presumptive scheme under section 44AE, then books of accounts in respect of such income or business as specified under section 44AA is not required to be maintained. You are also not required to get your accounts audited under section 44AB in respect of section 44AE income or business.
In this article, we will understand the provisions of section 44AE and how to calculate estimated income and tax liability under this presumptive taxation scheme.
Conditions to avail presumptive taxation scheme U/s 44AE
You can opt for presumptive taxation scheme benefits as applicable under section 44AE if following conditions are satisfied;
- You own not more than 10 goods carriage at any time during the previous year, and
- these goods carriage are engaged in the business of plying, hiring or leasing.
If you own more than 10 goods carriage during the previous year, then benefits of section 44AE can not be availed. For the purpose of section 44AE, ownership means possession of vehicles.
How to calculate presumptive income
If conditions to section 44AE satisfied, then you can calculate your estimated income for each goods carriage engaged in the business of plying, hiring or leasing of goods carriage at the rate of Rs. 7500 per month or part of the month.
Rs. 7500 per month or part of the month has to be calculated for the period during which the vehicle engaged in business of plying, hiring or leasing of goods carriage is owned by the assessee in the previous year.
For instance, if you have 5 vehicles engaged in the business of plying, hiring or leasing of goods carriage during the financial year 2018-19, then your estimated income under section 44AE is Rs. 4,50,000 i.e. 7500 * 5 *12.
You need to remember that as per section 44AE, you need to calculate estimated income per vehicle as discussed above if you own it during the previous year. It doesn’t matter whether you have used it for your business or not.
You can declare lower income than the limit specified in section 44AE, but for that you need to get your accounts audited under section 44AB and get your books of accounts maintained as per section 44AA.
To avail benefits of section 44AE, Rs. 7500 is the minimum limit which you need to declare as your income. However, you can declare higher income than the limit of Rs. 7500 as your estimated income under section 44AE.
If your business of plying, hiring or leasing of goods carriage is run under a partnership firm, then you need to compute your business income as per above provisions of section 44AE and from it you need to deduct interest, salary, bonus, commission or remuneration as calculated under section 40(b) of income tax act, 1961 to arrive at firm’s income chargeable to tax.
How to calculate tax liability
After estimating your income under section 44AE, you need to aggregate it with other income of the assessee to find out gross total income.
From gross total income, you can avail deductions under section 80C to 80U of income tax act, 1961, subject to fulfillment of conditions mentioned therein.
After deducting applicable deductions from gross total income, you will arrive at the taxable income.
On taxable income, you can calculate your tax liability based on the tax rates applicable to you. If you are a proprietor, then after taking out basic exemption limit, you can calculate based on the rates of 5%,20% or 30% as applicable for you. Read our earlier article to know how a proprietorship business is taxed in India.
Similarly, based on your form of business, you need to calculate your tax liability. In case of a partnership firm, you need to calculate tax at the rate of 30% on firm’s income.
Return of income to be filed and the due date of filing
In case of presumptive taxation scheme, you have to file ITR-4 by showing your estimated income and other details like salary, interest income if any in the return of income.
The due date of filing ITR-4 is 30th July of the assessment year relevant to the previous year for which return of Income is filed. If the due date has been extended by CBDT, then such extended date will be considered as due date and return of income should be filed on or before the extended date.
For instance, in case you want to file your income tax return for the financial year 2018-19, then it has to be filed on or before 30th July 2019. If date has been extended by CBDT then it has to be filed on or before the extended date.
Failure in filing return of income, may attract penalty and late fee.
Certain expenses will be deemed to be allowed
If you avail benefits of section 44AE, then following expenses will be deemed to be allowed;
- All expenses incurred by the business and eligible for tax deductions as business expenditure under section 30 to 38.
- WDV of assets will be calculated as if depreciation is allowed during the years in which benefits of section 44AE has been availed.