Income Tax tips to Healthcare Professionals
The friend of a mathematician saw him out of the office of a tax consultant. What are you doing here? asked the friend. The Professor replied, Arranging for them to do my income tax. You? The friend said You are a professor of mathematics, Do you mean to say that you cant file your own tax returns? Thatâs right the professor repliue Its beyond the abilities of mathematician!
The example sums up how one ends up when it comes to Income Tax. In spite of your well planned investments sometimes you are caught in the maze of income tax laws and end up by paying huge taxes, penalties and of course interest on the amount due by you !
1. Importance of Transparency:Â First and foremost is to be open as possible. The maximum amount of tax you might save by evading is just 33% of the amount sought to evade.
Of you declare this amount you are able to invest the remaining 67% say in tax free return investments and enjoy seeing the amount grow. If unfortunately you are caught by the tax department say after four years (Department can open your file any time before the lapse of 16 years) you may end up by paying more than the amount sought to be evaded and lose your face. Maximum amount of returns you might have earned on your evaded amount during those years at say 15% would not be sufficient to pay the taxes, interest and penalty due. Thus it does not make any business sense to evade taxes, unless you want to compromise with your conscience leading to maladies unknown !
2. Maintenance of books of accounts:Â Once you are open, you have to prove to the authorities that by producing your books of accounts. The Income Tax Act insists on all professionals to maintain the books of accounts when gross receipts are Rs 60,000 or more. There is misconception that it is enough if the doctor maintains daily case register (Form 3) Doctors whether General Practitioners, Consultants, or visiting specialists have to maintain the following books,
A) Day Book showing daily receipts and expenses. B) Journal showing non cash transactions. C) Ledger showing details of transactions in a particular head of account. D) Bills & Vouchers in respect of expenses. E) Bills issued by you if the fees are more than Rs. 25.00
Maintenance of these books is not only mandatory but also proves the fact that returns submitted by you are not cooked up figures and are genuine transactions.
If your total income (Gross receipts minus expenditure relating to profession plus any other income) exceeds the tax limit you have file the return even though you need not pay taxes due to your investments in tax rebate investments. Such return is to be filed before the notified date.
3. Receipts from patients/ Nursing homes and Hospitals etc. Whenever the patients/ nursing homes are meeting your expenses like traveling, food, accommodation or any other expenses incurred in the profession see that this expenditure is directly met by the party so that you need not bill and account for it.
Gifts of purely personal nature are exempt from tax. However if they are received by virtue of profession the y are treated as income as also while receiving gift vouchers.
Where ever professional income received from Hospitals and Nursing Homes is or exceeds Rs 20,000 the Hospital/ Nursing Home has to deduct TDS @ 5.5% You can apply in Form 13E for certificate to avoid TDS.
4. Expenditure deductible from your income:Â Expenditure incurred wholly and exclusively for profession is deductible, where as capital and or personal expenditure is not deductible. The same applies to expenses of traveling, accommodation, food etc pertaining to attending of seminars, conferences etc. Incase part of your house is used as clinic the part of expenses of your house building (rent, repairs, municipal taxes, electricity, telephone, salary, insurance etc) can be deducted from your gross receipts. In case of salary, professional charges etc paid to spouse or any relative, the payment should be reasonable. Otherwise such payment may be disallowed and clubbed to your income.
5. Deductions/ Rebates/ Investments: Investments should be well in advance to optimize tax exemption and higher returns are achieved. Invest in PPF, Mutual funds, Life Insurance, General Insurance of Vehicles, House etc. Plan for the retirement years in Pension plans.
6. Borrowings/ Repayments When ever you are borrowing from any person, if the amount is Rs 20,000 or more obtain the amount through A/C Payee cheque / DD Repayment should also be made through the same mode. While lending too the same should be adhered to.
Finally a man was charged for non payment of his Income Tax. On the witness stand he said, âAs God is my judge, I do not owe this Taxâ. The verdict from the judge was short, âHe is not. I am. You Doâ. And thatâs how a Income Tax case ends generally !!
Dr. Ravi Balagani, MDÂ Hospital Administrator
