Income Tax Benefits for Doctors

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 must maintain a ‘book of accounts’ for taxation. There are different income tax deductions for doctors that you can avail while filing your taxes, and you need to learn how to claim the same.

One of the downsides of being a busy professional is to lose track of your income and finances.

As a medical professional, you need to be aware of taxation rules and regulations applicable to you. Following them is important for not only paying your taxes correctly but also availing the relevant benefits under various income tax deductions, specially, for doctors. Before you know about the benefits, you need to learn about the documentation you must maintain as a doctor.

Income tax deductions for doctors in India has to be paid annually. Under the income tax returns for doctors Section 44AA, doctors must maintain a book of accounts 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 271B of the Income Tax Act. The last date of filing your income tax, if your book of accounts is required to be audited, is September 30.

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 INR 2.5 lakhs. Your total income for tax purposes will include earnings from your job, rental income, wages, interest income, capital gains, and so on. You may figure out how much money you make from your profession 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.

Which Books Should Doctors Maintain If Gross Receipts Exceed INR 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 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 INR 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?

An audit is compulsory for -

• Gross receipts over INR50 lakhs in a financial year.
• Gross receipts lower than INR50 lakhs, but total income over INR2.5 lakhs and profit less than 50% of gross receipts.

Income 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 this tax. In this case, your income is assumed, and it can be 50% of the receipts. You don’t need 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 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 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 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.

Calculation of gross receipts under the presumptive taxation scheme

You can use your practice or work earnings to compute your gross revenue for a given fiscal year. Doctors may have various sources of income in addition to their medical practice. Fees received by giving lectures at medical institutes, producing articles or publishing papers in medical publications, and other activities fall under this category.

These, however, do not qualify for inclusion in your gross receipts.

What is Audit 44AB?

If your gross fee collection for the previous financial year is more than INR 50,00,000, a practicing 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 INR 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 presumptive taxation for professionals or tax for doctors requires you to have a clear idea about your income, and the book of accounts always help with that.

FAQs

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 INR 2.5 lakhs requires maintenance and audits of the book of accounts.

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

Yes, you can declare profits of 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 have earned capital gains through the sale of shares or property, you need to file ITR-3, which is also applicable if you own more than one house property.

Income tax for doctors is a bit different as compared to other professionals. Therefore, all the doctors require a special kind of system in place to ensure that they do not fail in adhering to any of these rules. Everything being said, income tax returns for doctors might look complex at first buy there are professionals like CAs who can help you adhere to the IT rules and keep you safe from making any wrong move.