The Income Tax Act of 1961 offers various presumptive taxation provisions to simplify the taxation process for assessees. Section 44AE outlines one such presumptive taxation scheme applicable for small businesses that generate revenue from hiring, leasing, and plying less than 10 goods carriage vehicles in a given year. Under Section 44AE, their income is calculated at a prescribed rate, regardless of the actual profits or losses.
In this article, we explain the provisions of Section 44AE of the Income Tax Act and discuss its eligibility, exceptions, and the income calculation process in detail.
Budget 2025 update
The Union Budget 2025 has proposed the introduction of a new Section 44BBD to address taxation of non-residents engaged in providing services or technology to Indian residents involved in electronics manufacturing. Under this provision, eligible non-residents will be allowed to compute their taxable profits on a presumptive basis at 25% of the gross amount received for such services or technology. This move aims to simplify tax compliance and encourage participation of global service providers in India’s electronics manufacturing ecosystem.
What is section 44AE?
Section 44AE of the Income Tax Act highlights the presumptive taxation rules pertaining to small enterprises engaged in hiring, plying, and leasing vehicles for the purpose of goods carriage. As per the provisions of Section 44AE, the income of these assessees is calculated on a fixed presumptive rate per vehicle. In other words, Section 44AE of the Income Tax Act simplifies the income tax calculation process for small transporters by setting fixed income rates per vehicle. In doing so, this section eliminates the requirement for keeping detailed books of accounts and auditing.
What is the applicability of section 44AE?
Section 44AE of the Income Tax Act is applicable to any entity that deals with the hiring, leasing, or plying of vehicles for goods carriage. In other words, all types of taxpayers—individuals, Hindu Undivided Families (HUFs), partnership firms, and private companies—can opt for presumptive taxation under section 44AE.
What are the eligibility criteria for section 44AE?
Taxpayers can opt for the presumptive taxation scheme under Section 44AE only if they meet the following conditions:
Nature of business:
The scheme is applicable exclusively to taxpayers engaged in the business of plying, hiring or leasing goods carriages.Limit on vehicle ownership:
The taxpayer must not own more than ten goods vehicles at any point during the financial year. Owning more than ten vehicles makes the taxpayer ineligible for this scheme.Eligible taxpayers:
Section 44AE is available to individuals, Hindu Undivided Families (HUFs) and partnership firms. Limited Liability Partnerships (LLPs) are not permitted to opt for this presumptive taxation scheme.
Example:
If Mr. Raj operates a goods transport business and owns eight goods vehicles, he is eligible to opt for taxation under Section 44AE. However, if his vehicle count increases to twelve, he must follow regular taxation rules and maintain detailed books of accounts.
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How to calculate presumptive income under section 44AE?
The presumptive taxation scheme highlighted in Section 44AE of the Income Tax Act states that the income of eligible taxpayers will be calculated on an estimated basis. The income of the assessee is essentially the profits earned from the vehicle business in the previous financial year. Previously, Section 44AE imposed a flat rate of Rs. 7,500 per month per vehicle for both light and heavy vehicles. However, the Finance Bill of 2018 amended this provision to introduce differing rates for light and heavy vehicles.
According to the new provisions of the section, the following rates apply:
Light goods vehicles: Taxable income for light goods vehicles with a gross weight of <12MT will be calculated at Rs. 7,500 per month per vehicle. Part ownership during a month will be considered a whole month for income calculations. Moreover, the taxpayer will be considered as the owner of a vehicle hired for goods carriage purposes.
Heavy goods vehicles: Heavy goods vehicles are those with a gross weight of >12MT. Taxable income for heavy goods vehicles will be calculated at Rs. 1,000 per month per ton of unladen weight/gross weight of the vehicle.
Presumptive income should be calculated by multiplying the total number of vehicles owned by the taxpayer in a year with the prescribed rate as per vehicle type. Therefore, the formula for light goods vehicles is:
Income from light goods vehicles = No. of vehicles x No. of months x 7500 |
The presumptive income formula for heavy goods vehicles is:
Income from heavy goods vehicles = No. of vehicles x No. of months x 1000 x Vehicle’s gross weight (tons) |
Let’s take an example to understand how presumptive income is calculated under Section 44AE of the Income Tax Act. Suppose you are engaged in the business of plying goods vehicles and operate a fleet of 8 such carriage vehicles. Let’s say you owned 3 light vehicles from 1st June 2024 to 20th January 2025. You hired the remaining 5 heavy-goods vehicles with a gross weight of 20,000 Kg from 1st May 2023 to 31st October 2023.
According to the latest amendments to Section 44AE of the Income Tax Act, your presumptive income will be:
Presumptive taxable income from light goods vehicle = 3 x 8 x 7500 = Rs. 1,80,000
Presumptive taxable income from heavy goods vehicle = 5 x 6 x 1,000 x 20 = Rs. 6,00,000
Total presumptive income = 1,80,000 + 6,00,000 = Rs. 7,80,000
What are the exceptions under section 44AE
If you claim presumptive taxation under Section 44AE of the Income Tax Act, you cannot claim deductions offered under sections 30-38. In simple words, if your taxable income is calculated on the basis of the prescribed rates mentioned u/s 44AE, you have to forfeit the deductions outlined in these sections. You can still claim deductions u/s 80 to 80(C).
Additionally, if the taxpayer is a partnership firm, it can claim deductions on the salary and interest paid to partners. However, no deductions can be claimed on depreciation under this section. You can compute the written-down value of a business asset if depreciation, as per Section 32, has been claimed and allowed.
Which businesses are eligible for presumptive taxation schemes?
According to the eligibility provisions of Section 44AE of the Income Tax Act, only businesses that hire, lease, or ply less than 10 goods carriage vehicles in a year qualify for presumptive taxation. In other words, businesses engaged in operating, hiring, or leasing passenger-carrying vehicles do not qualify for the presumptive taxation scheme under Section 44AE of the Income Tax Act. In fact, even eligible businesses that have more than 10 goods-carrying vehicles at any point in a given year do not qualify for this scheme.
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Tax filing due dates under Section 44AE
Transporters opting for the presumptive taxation scheme under Section 44AE must ensure timely filing of their income tax returns to remain compliant and avoid penalties.
Individuals and HUFs: The return of income must be filed on or before 31st July of the relevant assessment year.
Partnership firms: The due date for filing the return is 30th September of the relevant assessment year.
Failure to file the return within the prescribed timelines may result in late filing fees, interest on outstanding tax liabilities and additional penalties under the Income Tax Act.
Special provisions for partnership firms
Although Section 44AE does not allow deductions for routine business expenses, partnership firms are entitled to claim certain specific deductions.
Partner remuneration: Salary and interest paid to partners are allowed as deductions, subject to the limits prescribed under Section 40(b).
Chapter VI-A deductions: Partnership firms can also claim eligible deductions under Sections 80C to 80U, such as investments in approved tax-saving instruments, provided other conditions are met.
Other conditions related to Section 44AE
As a taxpayer, you also need to be mindful of certain other conditions relating to Section 44AE of the Income Tax Act. If you are engaged in the hiring, leasing, and plying of goods carriage, you can opt out of the presumptive taxation scheme by declaring a taxable income that’s lower than Rs. 7,500 per month per vehicle (light vehicles). However, in such cases, you must maintain books of accounts and have them audited in keeping with Sections 44AA and 44AB.
Additionally, you can claim a TDS exemption under Section 194C(6) if you are a transporter and submit your PAN details. Similarly, u/s 40A(3), cash expenses of up to Rs. 10,000 can be claimed as a deduction by taxpayers. The ceiling is set at Rs. 35,000 for cash payments made to transporters involved in the hiring, leasing, and plying of goods vehicles.
Conclusion
Section 44AE of the Income Tax Act helps simplify the taxation procedure for small businesses, eliminating the need to maintain detailed accounts. This section pertains to good carriage enterprises engaged in the hiring, leasing, and plying of goods vehicles. Qualifying assessees can benefit from presumptive taxation rates mentioned in this section. They can calculate income for both light and heavy goods vehicles based on the prescribed rates under this section. If you are engaged in such a business and meet the other qualifying criteria under Section 44AE, you can calculate your tax liability on a presumptive basis.
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