25/07/2022
Presumptive Income for Doctors & other Professionals
And
Old vs New Income Tax Regime
Presumptive Income for Doctors & Other Professionals:
The word presumptive refers to providing a reasonable basis for acceptance. The Income-tax Act has framed the presumptive taxation scheme under section 44ADA to give specific relief to professionals (viz. Doctors, Lawyers, Accountants, and Engineers) whose total gross receipts do not exceed Rs. 50 lakhs. Under this scheme, these professionals could declare 50% of their gross receipts as taxable income, irrespective of their expenses. In addition, such professionals need not maintain or produce any books of accounts.
Old Vs. New Income Tax Regime:
In the 2020 Budget, the Finance Minister announced an income tax declaration scheme called a โNew Tax Regimeโ with more slabs and lower tax rates. No hard and fast rule exists in choosing between New and Old tax regimes. Both have advantages and disadvantages. Here are some points to consider before selecting a particular tax regime.
1. The new tax regime has lower tax rates with more slabs than the old regime. Under the new regime, you will not be allowed to deduct any exempted income or allowable deductions, for example, Investments in PF, payment of LIC and medical insurance premium), interest paid on housing loan, etc.
2. On the other hand, the old regime encourages investments for your future, provided your investments are on specific tax-saving instruments (subject to limit). If you have substantial eligible deductions, better to be under the old regime; the tax savings coming from deductions may nullify the gain under the new regime.
Practical Example:
As a medical practitioner, let us say you have an annual gross receipt of Rs. 30 lakhs and have qualifying investments / LIC premium of Rs. 1.5 lakhs, and you offer 50% as taxable income (Rs.15 lakhs). Under the new regime, Rs.15 lakhs is taxable at lower slab rates, but under the old regime Rs. 13.5 lakhs (after eligible deductions) is taxable at higher slab rates. As such, you will have a tax saving of Rs 31,200 under the new tax regime. If you donโt have any qualifying deductions, for the same income level, the tax savings will be Rs. 62,400 compared to the old regime.
Conclusion:
As your gross receipt increases, the savings under the new regime keep coming down. We could say that the new tax regime is designed to encourage new investors and startups with a lower tax burden at their initial stages. Regarding the change of regime, those having professional income get only one chance to move. However, before deciding to adopt or change the tax regime, it is always advisable to consult an Income Tax practitioner and make a simulation of tax liability under new and old regimes, considering your business plan, expected income growth, and investment plan.