Are you a Doctor? Here’s everything you should know about filing taxes

You can handle the greatest of ailments with ease, but going through tax filing is mortifying to you. If the one thing that worries you, is how to go about the business of filing your taxes and making sense of the process, the following pointers will come in handy.

Who should file an income tax return?

Anyone with total income of more than Rs 2.5Lakhs in a financial year must file an income tax return. Total income means income earned from all sources – such as salary, rental income, professional income, interest income etc.

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

What is presumptive taxation?

When you opt for presumptive taxation. Your income is ‘presumed’. Actual profit is not calculated. You can assume your profits to be 50% of your receipts. However, only those who have annual receipts of Rs 50lakhs or less can opt for this scheme.

If your annual receipts exceed Rs 50lakhs, you must report them and deduct actual business expenses to compute profit (or loss). This profit may be less or more than 50% of receipts. Those who opt for presumptive taxes do not have to compute or report actual profits. Presumptive taxation for doctors has been introduced effective FY 2016-17.

This scheme is available to individuals and HUF, if you are incorporated as a company, your profits cannot be presumptive. Also, you must be Resident in India as per the income tax act.

What are the benefits of presumptive taxation?

If you opt for this scheme, you do not have to keep books of accounts and no audit is required. This will help you save Rs. 20,000 easily that you would have to pay as fees to an accountant and auditor. The intent of law is to encourage small taxpayers to file tax returns and make compliance easy for them. But it may be wise to continue to keep at least some record of the transactions of your business.

You are also not required to pay advance tax in installments; paying your entire tax dues by 15th March of the financial year will suffice. Don’t worry if you fail to do so, pay as soon as you can. Penal interest is applicable on delayed tax payment @ 1% calculated monthly until you file your return.

Do I need to keep accounting records of my practice?

Just like a patient must diligently maintain medical records, accounting records of your practice are also useful and in some cases mandatory. The threshold for keeping accounting records is low for doctors. If your annual receipts are more than Rs 1.5lakhs in each of the past 3 years, you should keep some form of financial books. Some records have been prescribed such as –

Cash book – A record of day to day cash receipts and payments. A record that shows cash balance at the end of the day or at best at the end of each month.

Journal – A journal is a log of all day to day transactions accounting transactions.

Ledger – A ledger where all entries flow from the journal, it can be used to prepare the financial statements.

Copies of bills – Photocopies of bills or receipts issued by you which are more than Rs 25 Original bills of expenditure incurred by you which are more than Rs 50 Following are the additional requirements for doctors –

• Daily cash register with details of patients, services rendered, fees received and date of receipt
• Details of stock of drugs, medicines, and other consumables used.

Those who opt for presumptive scheme are exempt from record keeping, but some basic bill book, receipt book, bank statements must be kept for cross-validation.

How to calculate annual receipts?

The term gross receipts are not specifically defined in the income tax laws. However, all your receipts directly because of your profession, must be considered. You may have other receipts such as from authorships, taking lectures, contributing articles, which may not be included in computing your gross receipts.

If you have a significantly large number of other receipts – you should seek an expert’s help to sort this. At ClearTax, our experts can guide you and file your tax returns. Check out our expert assisted plan here

When should I get my accounts audited?

Audit is mandatory in two situations. When your receipts exceed Rs 50lakhs in a financial year. Or when your receipts are under Rs 50 lakhs but your profit is lower than 50% and your total income is more than Rs 2.5Lakhs (i.e. total income is taxable). Basically, when your total income is taxable and profits are less than 50% of gross receipts.

Do I pay lower taxes on digital receipts?

The answer is no. The lower rate of estimated profit of 6% (instead of 8%) for digital receipts is only available to presumptive businesses. So, your assumed profit will be 50% of your total receipts, irrespective of whether they are in cash or digital mode.

Can I submit profits higher than 50% of receipts?

Yes, that is completely possible. You can opt for the presumptive scheme and still declare profits higher than 50% of receipts. But if your receipts are under Rs 50 lakhs and your expenses are lower than 50% of receipts, you’ll end up saving significant tax by opting for this scheme.

My profits are less than 50% of receipts?

If you claim your profits are lower than 50% of receipts, but your total income is taxable, (it exceeds Rs 2.5L) in such a situation, you will have to maintain books of accounts and get them audited as well.

I earn income from a business, besides income from my practice, how do I report?

As a doctor, you may be running another commercial venture, say you are running a medicines shop, or you run a nursing home, where fee is charged for a room etc. In such a case, you may have to report income from these business activities as a business and presumptive rate of tax will not apply. Presumptive tax will only be available to your income earned directly due to your profession.

You can report a part of your income (professional income) as presumptive and balance income from a business can be calculated by claiming actual expenses, like running of any other business. In such a case, book keeping and audit rules may apply to the business activity, whereas presumptive activity may be exempt from these.

For how many years do I need to opt for this scheme?

Unlike presumptive businesses, there is no restriction for presumptive taxation for professionals. They can claim it one year and then opt out and then in the following year opt in again.  

Which tax return do I need to file?

For presumptive income ITR-4 is applicable. In this form income from one house property, salary income can also be reported. However, if you have any capital gains income or you own more than one house property, you cannot file this form. You will have to file ITR-3. Start your income tax return here

How is my income tax computed under presumptive scheme?

Rajesh is a doctor and has his own practice in Mumbai. He also works as a consultant in many reputed hospitals. He earned an income of ₹40 lakh in FY2016-17, that is between 1 April 2016 and 31 March 2017. In the normal course of things, without the benefit of presumptive tax, Rajesh’s taxable income (the amount she would need to pay tax on) would be something like this.

Taxable income without using presumptive taxation scheme

Total gross income for the year from consultancy and own practice	₹45 lakh
Work-related expenses that he plans to claim as tax deductions Travel & Transport Expense Meeting & Conferences Expense Communication Expense Assistant Salary Expense	₹15 lakh
Total taxable income (gross income – expenses)	₹30 lakh

  If there was no presumptive taxation scheme, Rajesh would pay income tax on ₹30 lakh. But by availing the benefit of presumptive taxation, she can show her taxable income to be half of her gross income–that is ₹22.5 lakh.

Taxable income after availing presumptive taxation scheme

Total gross income for the year from consultancy and own practice	₹45 lakh
Presumed taxable income after availing presumptive taxation scheme	₹22.5 lakh

The presumptive taxation scheme allows her to save tax on ₹7.5 lakh. Let’s calculate how much tax she would actually save.

Without presumptive taxation		With presumptive taxation
Taxable income – ₹30 lakh		Taxable income – ₹22.5 lakh
Tax calculation as per slabs for FY16-17		Tax calculation as per slabs for FY16-17
Income	Tax	Income	Tax
Up to ₹2.5 lakh	₹0	Up to ₹2.5 lakh	₹0
From ₹2.5 lakh to ₹5 lakh	₹25,000	From ₹2.5 lakh to ₹5 lakh	₹25,000
From ₹5 lakh to ₹10 lakh	₹1,00,000	From ₹5 lakh to ₹10 lakh	₹1,00,000
From ₹10 lakh to ₹30 lakh	₹6,00,000	From ₹10 lakh to ₹22.5 lakh	₹3,75,000
Total	₹7,25,000	Total	₹5,00,000

As is apparent, by using the presumptive taxation scheme, Rajesh will be able to save ₹2.25 lakh in taxes. That is, he will have to pay ₹2.25 lakh less as income tax. Do note that 3% cess would be added to the taxable income in both cases.