Presumptive Taxation &Medical Professionals

Presumptive Taxation: Medical Professionals can use New Section – Section 44 ADA for their Income Tax Purpose

 

 

After Section 44 AD of the Income Tax Act starting 1st April 2017, Section 44 ADA has been inserted namely:

44ADA. (1) Notwithstanding anything contained in sections 28 to 43C, in the case of an assessee, being a resident in India, who is engaged in a profession referred to in sub-section (1) of section 44AA ( it includes medical profession)  and whose total gross receipts do not exceed fifty lakh rupees in a previous year, a sum equal to 50% of the total gross receipts of the assessee in the previous year on account of such profession or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the assessee, shall be deemed to be the profits and gains of such profession chargeable to tax under the head “Profits and gains of business or profession”.

 

IMA’s View Point:

•        The Section is for simplification of taxation for professionals.

•        It will reduce compliance burden on small professionals and will felicitate ease of doing profession.

•        It will also bring parity between small businessmen who enjoy Presumptive Taxation under section 44 AD. It will be applicable to individual doctors, their HUF and their partnership firm (for example Husband & Wife partnership). It will not be applicable to limited liability partnership.  

•        Under this Assessment, doctors need not maintain the books required to be kept under Section 44 AA and doctors need not get the accounts audited under Section 44 AB.

•        All deductions from Section 30 to 38 including depreciation and unabsorbed depreciation and allowances shall be deemed as allowed and written down value of depreciable assets shall be re-computed deducting depreciation which is deemed as allowed.

•Kindly note that as a new section is introduced from 2017, Assessment Year 2017-18 and advance tax in the financial year 2016-17 may have to be calculated accordingly.

•This scheme may not be advisable for the professionals having some net profit ratio, who pay interest on borrowings, has significant depreciation available. 

•Unlike businessman who are permitted under Section 44 AD to pay the whole of advance tax by March 2015, the same concession is not available to doctors and they will have to pay  all 4 instalments of advance tax. 

•Also, there is no provision in Section 44 ADA permitting the professional firms to deduct interest/remuneration paid to partners from the presumptive income offered.

Example: if a doctor is earning less than 50 lacs per annum (most of the doctors will come in this bracket) than 25 lacs will be given to them as mandatory allowable expenses with no need for keeping records. Out of the next 25 lacs, they can claim 2-2.5 lacs on various investments and allowable adjustments and to the rest income tax will be applicable.

Roughly for an income of Rs. 50 lacs, Rs. 5 lacs will be the income tax which in totality comes out to be approx. 10% of the gross income.

When we professionals are ready to give 20-30% of our gross income fee to the corporate sector who provides us the space to have the OPD, paying 10% tax is a peanut and resultant no income tax worries.

Dr S S Agarwal and Dr K K Aggarwal  

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