Income Tax Benefits for Doctors in India: Filing & Deductions

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 (ITR)?

Anyone with a total income exceeding the basic exemption limit 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 ITR?

Your tax return must accurately represent income received from every source. This includes income from your practice, rental income, interest from savings accounts, and fixed deposits, along with capital gains from the sale of shares or real estate. There are two methods to calculate income generated from your practice.

1. Under Normal Provisions: Consider it like a normal business activity and deduct actual business expenses from actual business receipts to calculate its profit and loss and pay tax on it. 
2. Under Presumptive Basis: Opt for presumptive taxation (under presumptive basis your taxable income from profession will be deemed to be 50% of your total receipts from profession) and once your income is calculated from other sources, you can claim to reduce your taxable income by claiming deductions under section 80 and pay tax on the remaining income. You can use ClearTax to file your income tax return in the easiest way.

What is Presumptive Taxation?

The presumptive taxation scheme allows business owners and professionals to calculate profits as a percentage of their turnover. Professionals opting for presumptive taxation are required to calculate their profits as 50% of their professional receipts. However, only those professionals who have annual receipts of Rs 50 lakh or less can opt for this scheme. This limit has been increased to Rs 75 lakh only when cash receipts from the profession does not exceed 5% of the total receipts.

This scheme is available to resident individuals and firms (other than LLPs), if you are incorporated as a company, your profits cannot be presumptive. 

What are the Benefits of Presumptive Taxation?

The following are the benefits of opting for presumptive taxation:

• No need for audit
• No need for maintaining accounting records
• Simplified compliance process
• Single advance tax payments on 15th March of the financial year
• Can claim up to 50% of total receipts as expenditure

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 gross receipt is more than Rs. 1,50,000 for all 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 the 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 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. The 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 books, receipt books, and bank statements are advisable to be kept for cross-validation.

How to Calculate Annual Receipts?

The term gross receipts is not specifically defined in the income tax laws. However, all the receipts earned in your professional capacity must be considered. You may have other receipts from authorships, taking lectures, and 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.

When Should I Get My Accounts Audited?

The audit is mandatory in two situations: 

1. When your receipts exceed Rs 50 lakh in a financial year. or 
2. When your receipts are within the limit but your profit is lower than 50% of your receipts and your total income is more than Rs 2.5 lakh (i.e. more than basic exemption limit). 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 businesses and not professionals. 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 and allowed. You can opt for the presumptive scheme and still declare profits higher than 50% of receipts. But if your receipts are under Rs 50 lakh and your expenses are lower than 50% of your receipts, you’ll end up saving significant tax by opting for this scheme.

What if My Profits are Less Than 50% of Receipts?

If you claim your profits are lower than 50% of receipts, and your total income is taxable, (it exceeds Rs 2.5 lakh) 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 a 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 a 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 any other business. In such a case, bookkeeping and audit rules may apply to the business activity, whereas presumptive activity may be exempt from these.

Which Tax Return Do I Need to File for Presumptive Taxation?

For presumptive income ITR-4 is applicable. In this form income from one house property and 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. 

Illustration

Rajesh is a doctor and has his practice in Mumbai. He also works as a consultant in many reputed hospitals. He earned an income of ₹45 lakh in FY 2024-25. 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 a presumptive taxation scheme

If there was no presumptive taxation scheme, Rajesh would pay income tax on ₹30 lakh. But by availing the benefit of presumptive taxation, he can show his taxable income to be 50% of his gross income–that is ₹22.5 lakh.

Taxable income after availing presumptive taxation scheme

The presumptive taxation scheme allows him to save tax on ₹7.5 lakh. Let’s calculate how much tax he would actually save (assuming he has opted for the old regime).

As is apparent, by using the presumptive taxation scheme, Rajesh will be able to save ₹2.25 lakhs in taxes. That is, he will have to pay ₹2.25 lakhs less as income tax. Do note that 4% cess would be added to the taxable income in both cases.

Rajesh can alternatively opt for new regime and in that case the tax will be paid at even lower rates, i.e., Tax payable will be Rs. 5.9 lakh (without cess) if Rajesh doesn’t opt for presumptive taxation under the new regime. Whereas if Rajesh opts for presumptive taxation as well as the new regime then the tax payable will be Rs. 3.65 lakhs (without cess).