Income Tax Benefits for Doctors

As a doctor, it becomes difficult to practice your profession as well as plan your taxes. If you are a doctor in India, a little financial planning can help you gain access to tax benefits for doctors and save money. 

When you’re a busy professional like a doctor, it is easy to lose track of your income and finances. This means that you may easily 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.

Who should file an income tax return?

Doctors with a total income of more than Rs 2.5 lakhs in a financial year must file their ITR (Income Tax Return). Here, total income means income earned from various sources like salary, rental income, professional income, interest income etc.

If your annual income is over Rs. 2.5 lakhs, you need to maintain a ‘books of account’ for taxation. As a doctor, you can avail of some benefits while filing your taxes. 

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.

Section 44AA read with Rule 6F:

Under Section 44AA, it is mandatory for the medical professionals to maintain the books of accounts for income tax purpose.

Books required to maintain for the doctors whose Gross Receipt/Collection exceed Rs 1.50 Lakhs per annum:

  • Cash Book –  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
  • Carbon copies – 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 case register in Form No. 3C
  • An inventory as on the first and the last day of the previous year, of the stock of medicines, drugs etc. used for the purpose of his profession.

The books of accounts and the other documents specified in sub-rule (2) and sub-rule (3) should be maintained for the period of eight years from the end of relevant assessment year.

Under Section 271A of Income Tax, penalty for non-maintenance of records or the books of accounts is Rs. 25,000.

Audit 44AB

A Practicing doctor whose receipts are more than Rs. 50 lakhs during the previous financial year should audit his books of accounts by Chartered Accountant in practice. Or basically when your total income is taxable and profits are less than 50% of gross receipts.

Under Section-271 B of Income Tax Act, penalty for non-complying with tax audit is Rs. 1, 50,000 or 1/2% of gross receipt whichever is lower.

Due Date:-

  1. a) Non Audit Case: 31st July of the year
  2. b) Audit Case: 30th September of the year

How to prepare and file your income tax return?

Your income tax return must include income earned from all sources. This includes income earned from your practice, any rental income, income from fixed deposits and savings accounts and income earned from sale of any shares or property, called capital gains. There are 2 ways to calculate income from your practice. Either consider it like a business activity and deduct actual expenses from actual receipts to calculate its profit and loss and pay tax on it. Or opt for presumptive taxation. Once your income is calculated from all sources, you can claim reduce your taxable income by claiming deductions under section 80 and pay tax on the remaining income. Start your income tax return here.

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.


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