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What Are Income Tax Benefits For Doctors?

Income Tax for Doctors | Income Tax Benefit

If you are a medical practitioner in India, all you need is to plan to get benefits for paying your tax and saving money. Doctors rarely have time to learn about tax laws which leads to the neglect of tax planning. As one of India's top-paid careers, medical professionals need to pay a little more attention to sorting out their finances and 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

Doctors should keep up books of records for personal expense calculations. Be that as it may if your gross receipts in the clinical practice don't surpass Rs. 1.5 lakhs in the previous three years, you need not maintain the books.

Books to keep up if net receipts are over Rs. 1.5 lakhs in every one of the last three years:

a) Cashbook – this contains the records of everyday money exchanges. It shows the money balance toward the end of every day or each month.

b) Journal – this contains the logs of the daily bookkeeping transactions.

c) Ledger – this includes recording all sections from the diary for getting ready monetary statements.

d) Copies of bills – these are serially numbered copies of bills for totals more than Rs. 25.

e) Original bills – these are receipts of all items bought and bills got for totals over Rs. 50.

f) Payment vouchers – these are for when there are no receipts available for costs below Rs. 50.

Other than the books of records, a clinical expert should keep and regularly update these documents:

a) A day-by-day sales register in Form No. 3C posting subtleties of patients, the administration gave, expenses got with the receipt date;

b) Inventory of medications, prescriptions, and other consumables you use for your calling, as on the first and the most recent day of the past year;

c) You should save the reports for a very long time after the important appraisal year. Not keeping up the records may draw in punishment of Rs. 25,000 under Section 271A.

What if your Income is More Than 50 Lakhs a Year?

If your income is more than 50 lakhs a year, you should employ a chartered accountant to audit your book of records. Neglecting to do so will bring about a penalty of INR 1.5 lakh under Section 271 B of the Income Tax Act.

In case, if your book of records is needed to be audited, then the last date of filing of your income tax return is September 30.

Introducing the Presumptive Tax Scheme

While there are no particular tax reductions for a clinical expert, there is the possibility of opting for the Presumptive Tax Scheme under Section 44ADA of the Income Tax Act, 1961. As the name says, under this scheme, your income is only assumed and

The plan applies to any professional field (like medical, legal, architectural or engineering or technical consultancy, accountancy, interior designing, or some other career) having gross receipts not surpassing Rs 50 lakh. Under this plan, your income from your profession will be presumed to be half of the receipts.

The plan was introduced to lower the burden of paying income tax on small taxpayers. Under this plan, experts whose complete gross receipts are not more than Rs. 50 Lakhs in a financial year (April – March) can file their return proclaiming half of the gross receipt as income. And after deductions of section 80, they can pay the charge on the balance sum.

What are the Benefits of the Presumptive Tax Scheme?

While you ponder on taking this scheme up, here are some benefits of the same to help you decide:

a) Specialists can file an Income Tax return form ITR-4 - which is a much more straightforward structure - rather than ITR-3- which is generally confusing.

b) Professionals would now be able to document government forms all alone as opposed to paying an accountant.

c) Usually, there are very few costs to declare for a clinical expert, announcing half of the income as benefit and equilibrium as cost. A great deal of saving should be possible.

Other than the advantages of not keeping any records, another in addition to paying 'Presumptive Tax' is that the penalty under Section 271B of Income Tax Act, 1961 isn't pertinent to you. This can help you set aside INR 20,000 that you would have paid as charges to a Chartered Accountant or an inspector.

While not keeping up books of record could be one of the advantages of presumptive tax assessment, it does not help if you want to know and record your losses and gains.

Likewise, this is a restricting factor if you opt for this scheme because you can't guarantee costs and allowances from your income. It would become hard for you to differentiate between the losses and gains you're getting from your medical practice and any other freelance work that you might be doing.

What if you have Two Sources of Income?

Apart from being a doctor if you have any other source of income both come under the Income Tax laws, and the tax would be charged on both. You can add your freelancing pay to your salary to determine the total tax you have to pay. In any case, you can utilize the advantage of the presumptive tax collection plan and add just 50% of your independent pay to your salary.

For example, let's say your salary is Rs 22 lakh and your freelance salary is Rs 12 lakh. Here, you can utilize presumptive tax collection and add just 50% of the last to your total. Therefore, your total pay for the year will be Rs.28 lakh.

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Annual Income (In Lacs)

FAQs Related to Tax Saving

First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.

How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

You can choose from many investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), tax-saving bank FDs.

First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!

The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.

There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.

First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.

Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.

Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.

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