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Why Doctors Take Loans for Tax Exemptions?

A doctor’s life is pretty hectic and they rarely have time to complete in-depth financial planning so opting for a doctor loan is the ideal option. As a result of the lack of tax-saving investments, poor account maintenance, and incorrect ITR filing, they wind up paying a significant amount in taxes (income tax returns) but focusing on taxations and general financial planning is of utmost importance.

If you’re a doctor in India, good tax planning can help you save a lot of money on income taxes while also increasing your disposable income by lowering your tax burden. Although there is no explicit tax exemption for professionals in India, including doctors, you can still benefit from the presumptive taxation approach for calculating income for professionals. Medical, legal, engineering, architecture, accountancy, consultancy, interior design and other professions are all included by the scheme.

In addition to the presumptive taxation, you are eligible for tax incentives under Chapter VI-A as a doctor in India (80C, 80D, etc). You can reduce your taxable income by investing in tax-advantaged investment schemes including guaranteed return plans, mutual funds, and the National Pension Scheme (NPS), among others, under Section 80C of the Internal Revenue Code.

What is Presumptive Taxation?

The term ‘presumptive tax’ refers to a feature of tax benefits for doctors which they take for a doctor loan. You can pay ‘presumptive tax’ if your annual income is less than Rs. 50 lakh, according to your receipts. Your income is assumed in this situation, and it can be up to 50% of your receipts. If you choose ‘presumptive tax’, you are not required to submit your actual income. Individual doctors operating in India can benefit from this scheme, which was launched in the 2016-17 fiscal year.

In the event of presumptive taxes, on the other hand, you are not required to record or compute your real profits. Individuals and HUFs are the only ones who can benefit from the presumptive taxation arrangement. You cannot, however, file for presumptive taxation if you have a corporation or firm. Furthermore, the presumptive taxation method is only available to Indian residents. So, if you’re a solo doctor in India, you can take advantage of the program.

Benefits of Presumptive Taxation for Doctors

You do not have to record your actual income or expenses for income tax purposes under this taxing arrangement. Furthermore, if your professional income under the presumptive taxation plan exceeds 50% of gross revenues, no tax audit is necessary.

You are not needed to keep books of accounts if you choose to compute your income using the presumptive taxation plan. You also save money by not having to hire a chartered accountant for tax audits. Furthermore, in the presumptive taxation option, advance tax is not required.

Aside from the tax advantages of the presumptive taxation plan, you are also exempt from penalties under Section 271B of the Income Tax Act of 1961.

This can save you money on fees that you would have paid to a Chartered Accountant or an auditor otherwise. If you claim that your earnings from your practice are less than 50% of gross receipts and your total income exceeds the maximum amount not subject to income tax, you must keep your books of accounts in accordance with Section 44AA, have them audited by a chartered accountant, and file a report under Section 44AB.

What is Section 44AA?

Doctors are required to keep books of accounts for income tax purposes under Section 44AA. You do not need to compile your books of accounts if your total income was less than Rs. 1.5 lakhs in any of the previous three years.

Section 44AA requires doctors to keep the following books of accounts:

  • Daily cash transactions and cash balances are reported in the cashbook.
  • Keep a journal to keep track of your everyday accounting transactions.
  • All journal entries are recorded in this ledger, which is also used to prepare financial accounts.
  • Copies of bills and invoices with a total value of more than Rs. 25
  • Original receipts for any bills over Rs. 50.
  • In the absence of invoices and receipts for amounts greater than Rs. 50, properly signed payment vouchers are required.

Aside from these books of accounts, doctors must also keep the following documents on hand to guarantee that they do not run into any problems while filing their tax returns or claiming any tax benefits.

  • Maintain a daily cash register in Form No. 3C, noting the names of patients, services provided, money received, and the date of receipt.
  • Medicine supplies, medications, and other medical consumables are listed in an inventory record.
  • If you fail to keep the required records, you may be fined Rs. 25,000 under Section 271A. 

Furthermore, if you earned more than Rs. 50 lakhs in the previous financial year as a practising doctor, you must have your books of accounts audited by a professional Chartered Accountant.

As a prudent taxpayer, you should be aware of income tax provisions for doctors so that you can claim all possible tax benefits for doctors loan in India. Apart from using the ways outlined above to reduce your tax obligation, you should also take advantage of further tax benefits of up to Rs. 1.5 lakhs available under Section 80C.

You can put your money into a sound guaranteed investment plan. It’s critical to follow them not only to pay your taxes accurately but also to get the benefits you’re entitled to. In India, doctors must pay an annual income tax. 

If you work as a doctor in India, a little financial planning can help you save money and obtain access to tax perks for doctors. If your annual income exceeds INR 2.5 lakh, you must have ‘books of account’ for tax purposes. You can take advantage of various tax advantages as a doctor. All you have to do now is figure out how to get these rewards.

Being a busy professional has its drawbacks, one of which is losing track of your income and finances. You might even overlook tax-saving opportunities. You must be informed of the taxation rules and regulations that apply to you as a medical professional.


Sakshi is a Financial Advisor who helps people with investments and help them to get more out of their investment.
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