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May 19, 2021

Presumptive taxation for Doctors as per section 44ADA

by Mahesh Mara in Income Tax

Presumptive taxation for Doctors as per section 44ADA

Presumptive taxation scheme allows you to calculate your tax on an estimated income or profit. The scheme can be used by Professionals who are governed or regulated by an institute or body such as doctors, lawyers, architects, interior designers and others can adopt Presumptive Taxation Scheme. For them, 50% of the total receipts during the fiscal will be considered as profit and get taxed accordingly. A professional can voluntarily declare the income at a higher rate than mandatory 50% of the total receipts. Provision for presumptive taxation is covered under section 44ADA. If a person has opted for presumptive scheme under section 44ADA and he claims his income lower than the deemed profits and his income exceeds the ceiling for chargeability of income tax, is also required to get tax audit done. 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.

Assessee who opts for presumptive scheme do not have to keep books of accounts and no audit is required. 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.

Who are eligible for opting presumptive taxation under section 44ADA?

The following Indian assessees are eligible:

  • Individuals
  • Hindu undivided families (HUFs)
  • Partnership firms (note that limited liability partnerships are not eligible)

Professionals mentioned under Section 44AA of the Income Tax Act, 1961, whose total gross receipts are less than Rs 50 lakh in a year are the eligible beneficiaries.

Professionals engaged in the following professions are eligible for presumptive taxation under section 44ADA:

  • Interior decorations
  • Technical consulting
  • Engineering
  • Accounting
  • Legal
  • Medical
  • Architecture
  • Other professionals, as mentioned below:

a. Movie artists includes a producer, editor, actor, director, music director, art director, dance director, cameraman, singer, lyricist, story writer, screenplay or dialogue writer and costume designers

b. Authorised representative means a person who represents another person for a fee before a tribunal or any authority constituted under any law. It does not include an employee of the person so represented or a person who is carrying on the profession of accountancy

c. Any other notified professionals

What is the method of keeping books of accounts by doctor in practice in case presumptive taxation opted?

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.

In case person is not opting for presumptive scheme the threshold for keeping accounting records is low for doctors. If the annual receipts are more than Rs 1.5 lakhs in each of the past 3 years, you should keep some form of financial books. Some records have been prescribed such as –

a. 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.

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

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

d. 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.

How to calculate annual receipts in case opting for presumptive taxation?

The term gross receipts are not specifically defined in the income tax laws. However, all the receipts directly because of your profession, must be considered. The assessee may have other receipts such as from authorships, taking lectures, contributing articles, which may not be included in computing the gross receipts. If case the assessee has a significantly large number of other receipts than they must should seek an expert’s help to sort this.

What form does person opting for presumptive taxation is required for 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.

How to calculate income under section 44ADA: Presumptive taxation?

Higher of the following is offered as presumptive income:

  • 50% of the total receipts from the profession
  • Income offered by the assessee from the profession

Note:

  • Unlike presumptive businesses, there is no restriction for presumptive taxation for professionals.
  • Professionals can claim it one year and then opt out and then in the following year opt in again.
  • Person opting for presumptive taxation are also not required to pay advance tax in instalments

For instance

Mr. X is a doctor. His total receipts for the financial year 2020-21 are Rs 30 lakh. His annual expenses are Rs 10 lakh. Here, we can compare his taxable income under normal provisions and presumptive scheme as below:

Under normal provisionsAmount
Gross receipts30,00,000
Less: Expenses10,00,000
Net profit20,00,000
Under Presumptive scheme Amount
Gross receipts30,00,000
Less: 50% deemed expenses15,00,000
Net profit15,00,000

In the above case, the net profit under the presumptive scheme is lower than the normal provisions. Hence, it is beneficial for Mr X to offer his income under the presumptive scheme of taxation under section 44ADA.

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