Various Income Tax Benefits for Doctors in India

• 11th Oct 2019
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If you are a medical expert in India, a little financial planning can help you gain access to tax benefits for doctors and save money. If your annual income is over INR 2.5 lakh, you need to maintain a ‘books of account’ for taxation. As a doctor, you can avail of some benefits while filing your taxes. You just need to learn how to claim these benefits.

One of the downsides of being a busy professional is to lose track of your income and finances. You might even miss opportunities to save on your taxes. As a medical professional, you need to be aware of taxation rules and regulations that are applied to you. Following them is important for not only paying your taxes correctly but also availing of the relevant benefits.

Before you know about the benefits, you need to learn about the documentation that you must maintain as a doctor.

Income tax for doctors in India has to be paid annually. Under the income tax deduction Section 44AA, it is mandatory for doctors to maintain a book of accounts, which is required for taxation purposes. However, tax is applicable only for those doctors who earn above INR 2.5 lakh every financial year. The book of accounts must include a cash book, ledger, journal, and copies of any bill exceeding INR 25.

If your income for a financial year is over INR 50 lakh, you must hire a professional chartered accountant to audit your book of accounts. Failing to do so will result in a penalty of INR 1.5 lakh under Section 271 B of Income Tax Act. The last date of filing your income tax, in case your book of accounts is required to be audited,is September 30.

Section 44AA read with Rule 6F:

Doctors must maintain books of accounts for income tax computations. However, if your gross receipts in the medical profession do not exceed Rs. 1.5 lakhs in the any of the past three years, you need not prepare the books.

Books to maintain if gross receipts are over Rs. 1.5 lakhs in each of the last three years:

• Cashbook – Records of day-to-day cash transactions, showing the cash balance at the end of each day or each month
• Journal – Logs of daily accounting transactions
• Ledger – Recording all entries from the journal for preparing financial statements
• Copies of bills – Serially numbered photocopies of invoices issued for amounts more than Rs. 25
• Original bills – Receipts of all expenditure incurred and bills received for sums over Rs. 50
• Payment vouchers duly signed – In the absence of relevant invoices or receipts for expenses less than Rs. 50

Other than the books of accounts, a medical professional should keep and maintain the following documents:

• A daily cash register in Form No. 3C listing details of patients, service provided, fees received with receipt date
• Inventory of drugs, medicines, and other consumables you use for your profession, as on the first and the last day of the previous year

You must keep the documents for eight years after the relevant assessment year. Not maintaining the records may attract a penalty of Rs. 25,000 under Section 271A.

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How to calculate annual receipts?

The income tax laws do not specifically define the term ‘gross receipts’. But you should consider all receipts collected directly through your medical practice to compute your gross annual receipts.

When should I get my accounts audited?

An audit is compulsory for:

• Gross receipts over ₹50 lakhs in a financial year
• Gross receipts lower than ₹50 lakhs but total income over ₹2.5 lakhs and profit less than 50% of gross receipts

Tax benefits for doctors

‘Presumptive Tax’ is an important aspect involved in tax benefits for doctors. If your receipts show that your annual income is less than INR 50 lakh, you can consider paying

‘Presumptive Tax’. In this case, your income is assumed and it can be 50% of the receipts. It is not mandatory for you to report your actual income if you opt for ‘Presumptive Tax’.This scheme was introduced in the Financial Year 2016-17 and it is available for individual doctors practicing in India.

What is presumptive taxation?

Under this taxation system, your income is assumed to be 50% of gross receipts. You need not report your actual profit for income tax calculation. However, you can opt for this scheme only if your annual receipts amount to Rs. 50 lakhs, or less. No tax audit is necessary unless your total income exceeds Rs. 2.5 lakhs or you claim income less than 50% of the gross receipts.
Benefits of Presumptive Tax Scheme:

• Exemption from record-keeping
• No expense on Chartered Accountant’s fees for tax audits
• Advance tax payments in instalments not necessary

Other than the benefits of not having to keep any accounts-related records, another plus point of paying ‘Presumptive Tax’ is that the penalty under Section 271B of Income Tax Act, 1961 is not applicable to you. This can help you save up to INR 20,000 that you would have paid as fees to a Chartered Accountant or an auditor.

What if my profits are less than 50% of receipts?

In this case, you need to consider your total income for the financial year. Income beyond the tax-exempt slab of ₹2.5 lakhs requires maintenance and audits of books of accounts.

Can I declare profits of more than 50% of receipts?

Yes, you can declare profits more than 50% of annual gross receipts under the presumptive taxation scheme.

Which tax return do I need to file?

If you opt for presumptive tax payment, you need to file ITR-4. You can also include income from house property and salary, if any, in this form. However, if you earned capital gains through the sale of shares or property, you need to file ITR-3 . ITR-3 is also applicable if you own more than one house property.

What is Audit 44AB?

If your gross fee collection for the previous financial year is more than Rs. 50,00,000, a practising Chartered Accountant must audit your books of accounts. Thus, this audit applies if your total income is taxable and your profits are lower than 50% of gross receipts. Under Section 271B, the penalty for failing to audit is the lower of Rs. 1.5 lakh and ½% of gross receipt.

It is advised that you maintain some records of your accounts even if you are paying ‘Presumptive Tax’. Paying professional tax for doctors requires you to have a clear idea about your income and the books of accounts help with that.

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