Income Tax Benefits for Doctors in India

Who Should File an Income Tax Return?

You must file an income tax return if you are a doctor or a medical practitioner with an annual salary of more than ₹2.5 lakhs. Your total income for tax purposes will include earnings from your job, rental income, wages, interest income, capital gains, and more. This brings up a common question: Do doctors pay taxes in India? The answer is yes, and accurately filing your return is essential.

You can compute your professional income in two ways:

• Consider your career to be a business activity, and calculate your profits by subtracting your actual expenses from your receipts.
• Consider presumptive taxation for professionals, which is a good option.

Once you’ve calculated your total income, you can use Section 80C to claim tax benefits for assets like guaranteed return investment plans and more. Apart from insurance tax benefits and any tax advantage claims under Section 80C, the rest of your income will be subject to taxation.

Section 44AA with Rule 6F:

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

How to Prepare and File your ITR?

While treating patients might be second nature to you, managing your tax returns requires close attention to detail. To make the most of the tax benefits for doctors in India, you need to ensure that your income tax return reflects all sources of income, whether it is from your private practice, consultancy fees, rent from property, capital gains, or interest from bank accounts and fixed deposits.

There are two ways you can calculate the income earned from your medical practice:

1. Normal Provisions: Treat your practice like any other business. This method involves calculating your total professional income and deducting the actual expenses incurred in earning it. The remaining amount is your taxable income.
2. Presumptive Taxation Scheme (Section 44ADA): If you wish to avoid the hassle of maintaining detailed books, you can opt for the presumptive taxation method. Here, 50% of your total professional receipts are considered your taxable income by default. Once this amount is combined with any other income sources, you can claim deductions under various sections like 80C to reduce your overall tax liability.

Pick a method based on your practice size and how well you maintain records. Filing ITR for doctors accurately ensures you get the right deductions and avoid penalties.

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 INR 50 lakhs or less. No tax audit is necessary unless your total income exceeds INR 2.5 lakhs, or you claim income less than 50% of the gross receipts.

Benefits of the Presumptive Tax Scheme

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

Other than the benefits of not keeping any accounts-related records, another plus point of paying ‘Presumptive Tax’ is that the penalty under Section 271B of the Income Tax Act, 1961, does not apply 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 is Section 44AA?

Section 44AA of the Income Tax Act lays out the requirements for maintaining books of accounts for certain professionals, including doctors. As a medical practitioner, you’re expected to maintain detailed financial records if your gross receipts exceed ₹1.5 lakh in any of the past three years. These records help in ensuring transparency and ease while filing returns.

To avoid complications while filing your returns and claiming tax benefits for doctors in India, you should also ensure that your overall documentation is in order. Apart from the usual registers, you must:

• Keep copies of bills issued for transactions over ₹25
• Retain original bills for all expenses above ₹50
• Use payment vouchers for smaller transactions when no receipt is available

Failing to maintain these documents may result in a penalty of ₹25,000 under Section 271A.

Additionally, if your professional income exceeds ₹50 lakh during the financial year, you must get your books audited by a Chartered Accountant.

Which Books Should Doctors Maintain If Gross Receipts Exceed ₹1.5L?

Cashbook

Records of day-to-day cash transactions, showing the cash balance at the end of each day or 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 INR 25.

Original bills

Receipts of all expenditures incurred and bills received for sums over INR 50.

Payment vouchers duly signed

In the absence of relevant invoices or receipts for expenses less than INR 50.

Besides the book of accounts, a medical professional should keep and maintain the following documents:

It is only fair that the income tax return for professionals is managed by professionals. Here are some documents a medical professional should maintain:

• A daily cash register in form no. 3C listing details of patients, service provided, fees received with receipt date, etc.
• Inventory of drugs, medicines, and other consumables you use for your profession, as on the first and the last day of the previous year.
• The documents for eight years after the relevant assessment year as not maintaining the records may attract a penalty of ₹25,000 under Section 271A.

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 You Get the Accounts Audited?

Getting your accounts audited becomes mandatory in the following scenarios:

• When your professional receipts exceed ₹50 lakh in a financial year.
• When your receipts are within the ₹50 lakh limit, but your declared profit is less than 50% of your gross receipts and your total income exceeds ₹2.5 lakh (i.e., the basic exemption limit).

In such cases, even if you opt for presumptive taxation, you’ll be required to maintain proper records and undergo a formal audit to continue claiming tax benefits for doctors in India.

Calculation of Gross Receipts under the Presumptive Taxation Scheme

To understand how the presumptive taxation scheme works for medical professionals, let’s take an example with detailed comparison tables:

Dr. Meera, a general physician in Pune, earns ₹40 lakh annually from her private practice and consultancy. Instead of maintaining detailed records, she opts for the simplified taxation framework provided by Section 44ADA, wherein 50% of her gross receipts are considered taxable income, i.e., ₹20 lakh. She also claims deductions under Section 80C, lowering her taxable base.

Now, compare this with the regular taxation method, where she deducts her actual expenses, say ₹12 lakh, from ₹40 lakh. Her taxable income in that case becomes ₹28 lakh.

Taxable Income Comparison

Assuming Dr. Meera follows the old tax regime, here’s how the final tax payable looks:

Income Tax Payable (Old Regime)

Tax Savings Comparison

By opting for presumptive taxation, she saves ₹2.4 lakh in taxes before cess. Clearly, this scheme can offer considerable tax benefits for doctors in India, especially those with predictable earnings and manageable expenses.

Dr. Meera can also explore filing ITR for doctors using Form ITR-4 (presumptive method), which simplifies the return process significantly.

FAQs Income Tax Benefits for Doctors in India