What is Presumptive Taxation?

The regular taxation system requires you to file income tax based on income earned from all sources. Here, the doctor’s practice is considered a business activity. Actual expenses are deducted from actual receipts to calculate profit or loss, based on which income tax is levied.

Presumptive taxation, on the other hand, does not require the doctor to calculate actual profits. Their income is ‘presumed’. So long as their annual receipts are below ₹50 lakhss, they can assume their profits to be 50% of these receipts. In this manner, one need not compute or report actual profits. Introduced since FY2016-2017, it is an option for individual medical practitioners.

Benefits of Presumptive Taxation
  • A significant advantage of opting for this means of taxation is that account books and audits are no longer necessary. As a result, the money spent on accountants and auditors will no longer be needed. However, it is advisable to maintain a record of transactions.
  • Unlike with regular taxation, here one is not required to pay advance tax in instalments. Paying the entire amount on the 15th of March is allowed. This relieves the periodic burden on the taxpayer’s mind.
  • There is no strict restriction or timeline one must follow when opting for presumptive taxation. Once opted for, it can be dropped any year, and then opted for again the next year.
  • If your expenses are less than 50% of your gross income, you stand to save tax with this scheme, since it enables you to count expenses up to 50%. For example: If your total income is ₹30 lakhs and your expenses are ₹10 lakhs. In this instance, the schemes allow you to count taxable income as ₹15 lakhs, instead of ₹20 lakhs.
  • However, let’s take another scenario - If your expenses are more than 50% of your gross income. In this case, it may not be advisable to enter the presumptive taxation scheme. You are required to maintain books of accounts and get them audited as well. You are required to pay tax as per the normal tax slabs on the taxable income after deducting eligible business expenses. 
When is Presumptive Taxation not Valid?
  • When gross income exceeds ₹50 lakhs.
  • Income is generated through means other than medical practice (nursing homes/medical shops etc.) For every other mode of income, the tax will be levied like it is with any other business.
  • The claimant is a company and not an individual practitioner.
  • The individual is not a resident of India.