Private healthcare sector: Income tax incentives, Legal Provisions and Judgments
This article covers various sections related to healthcare sector such as Section 10(23C), Section 44A, Section 44AB, Section 11, Section 12, Section 35AD, Section 194I, Section 194h, Section J and many more along with various related case laws.
Legal Provisions with respect to tax incentives availed by private health care sector under the Income Tax Act
| Section as per Income Tax Act | Provision in brief | |
| 10(23C) | In computing the total income of a previous year of any person, any income falling within any of the following clauses relating to such assessee (Private Hospital etc.) shall not be included if income received by any person on behalf of—
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| 11 |
Section 11 deals with the exemption of income from property held in trust/institution or other legal obligation for religious/charitable purpose wholly or in part and voluntary contributions. |
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| Section | Nature of income and Extent to which exemption allowed | |
| 11(1)(a) |
income derived from property held under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India and where any such income is accumulated or set apart for application to such purposes in India to the extent to which the income so accumulated or set apart is not in excess of 15% of the income from such property |
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| 11(1)(b) |
income derived from property held under trust in part only for such purposes, the trust having been created before the commencement of this Act to the extent to which such income is applied to such purposes in India and where any such income is finally set apart for application to such purposes in India to the extent to which the income so set apart is not in excess of 15% of the income from such property |
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| 11(1)(c) |
Income derived from property held under trust for a charitable purpose, which tends to promote international welfare in which India is interested To the extent income is applied to such charitable or religious purposes outside India. Exemption is available only if the Board has directed such exemption. |
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| 11(1)(d) |
Income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution is eligible for 100 per cent exemption. |
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| 11(2) |
Where the balance 85 per cent of the income is not applied or is not deemed to have been applied to charitable or religious purposes in India during the previous year, such income so accumulated or set apart shall not be included in the total income if the following conditions are fulfilled:
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| 11(3) | Any income referred to in sub-section (2) which—
(a) is applied to purposes other than charitable or religious purposes as aforesaid or ceases to be accumulated or set apart for application thereto, or [(b) ceases to remain invested or deposited in any of the forms or modes specified in sub-section (5), or] (c) is not utilised for the purpose for which it is so accumulated or set apart during the period referred to in clause (a) of that sub-section or in the year immediately following the expiry thereof, [(d) is credited or paid to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10,] shall be deemed to be the income of such person of the previous year in which it is so applied or ceases to be so accumulated or set apart or ceases to remain so invested or deposited or [credited or paid or], as the case may be, of the previous year immediately following the expiry of the period aforesaid.] |
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| 11(3A) |
Notwithstanding anything contained in sub-section (3), where due to circumstances beyond the control of the person in receipt of the income, any income invested or deposited in accordance with the provisions of clause (b) of sub- section (2) cannot be applied for the purpose for which it was accumulated or set apart, the 2 Assessing] Officer may, on an application made to him in this behalf, allow such person to apply such income for such other charitable or religious purpose in India as is specified in the application by such person and as is in conformity with the objects of the trust; and thereupon the provisions of sub- section (3) shall apply as if the purpose specified by such person in the application under this sub- section were a purpose specified in the notice given to the 3 Assessing] Officer under clause (a) of sub-section (2). |
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| 11(4A) | The deductions under section 11 shall not be admissible in relation to any income, being profits and gains of business profit unless (i) the business is incidental to attainment of objectives of the institution and (ii) separate books of account are maintained in respect of such business. | |
| 12 |
Any voluntary contributions received by a trust created wholly for charitable or religious purposes or by an institution established wholly for such purposes (not being contributions made with a specific direction that they shall form part of the corpus of the trust or institution) shall for the purposes of section 11 be deemed to be income derived from property held under trust wholly for charitable or religious purposes and the provisions of that section and section 13 shall apply accordingly. (2) The value of any services, being medical or educational services, made available by any charitable or religious trust running a hospital or medical institution or an educational institution, to any person referred to in clause (a) or clause (b) or clause (c) or clause (cc) or clause (d) of sub-section (3) of section 13, shall be deemed to be income of such trust or institution derived from property held under trust wholly for charitable or religious purposes during the previous year in which such services are so provided and shall be chargeable to income-tax notwithstanding the provisions of sub-section (1) of section 11. |
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| 13 |
The exemption granted by Sections 11 or 12 of the Act would not, however, be available in the following cases and circumstances:
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| 32 read with rule 5(1) Appendix I. |
In respect of depreciation of machinery (life saving medical equipment141) owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the deductions shall be allowed @ 40 per cent of written down value of the relevant assets. | |
| 35AD |
An assessee shall be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure is incurred by him : Provided that the expenditure incurred, wholly and exclusively, for the purposes of any specified business, shall be allowed at the specified rate as deduction during the previous year in which he commences operations of his specified business, if— (a) the expenditure is incurred prior to the commencement of its operations; and (b) the amount is capitalized in the books of account of the assessee on the date of commencement of its operations. This provision is admissible for specified business in the nature of building and operating a new hospital with at least 100 beds for patients. Further the capital expenditure shall not include acquisition of land or goodwill or financial instrument. |
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| 80IB(11B/11C) |
Where the gross total income of an assessee includes any profits and gains derived from any business as specified, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section. The amount of deduction in the case of an undertaking deriving profits from the business of operating and maintaining a hospital in a rural area/other than excluded area shall be hundred per cent of the profits and gains of such business for a period of five consecutive assessment years, beginning with the initial assessment year, if (i) such hospital is constructed at any time during the period beginning on 1 October, 2004 and ending on 31 March, 2008; (for hospitals in rural area) and 1 April, 2008 and ending on the 31 March, 2013 (for hospitals in other than the excluded area 142 (ii) the hospital has at least one hundred beds for patients; (iii) the construction of the hospital is in accordance with the regulations, for the time being in force, of the local authority; and (iv) the assessee furnishes along with the return of income, the report of audit. |
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Other legal provisions applicable to assessees engaged in private healthcare business or profession
| Section as per Income Tax Act | Provision in brief |
| 37 |
Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profit and gains of business or profession. Further, as per the explanation given below section 37 any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure”. |
| 40(a)(ia) |
Following amounts shall not be deducted in computing the income from the business in the case of any assessee “any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or subcontractor, being resident, for carrying out any work (including supply of labour for carrying out any work)], on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139.” |
| 40A(3) |
Where the assessee incurs any expenditure in respect of payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure. |
| 44AB |
Every person, carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AE or section 44BB or section 44BBB, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year; or (d) carrying on the Business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under section 44AD and he has claimed such income to be lower than the profits and gains so deemed to be the profits and gains of his business and his income exceeds the maximum amount which is not chargeable to income-tax in any previous year get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. Note: As per Guidance Note on Tax Audit Issued By ICAI the activities that have been held to be Business inter alia includes Nursing home. |
| 44AA |
Maintenance of accounts by certain persons carrying on profession or business Every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act. As per Rule 6F of Income Tax Rules, 1962; books of account and other documents are to be kept and maintained under section 44AA(3) by persons carrying on certain professions. As per rule 6F(1) every person carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or authorised representative or film artist shall keep and maintain the books of account and other documents specified in sub-rule (2): Provided that nothing in this sub-rule shall apply in relation to any previous year in the case of any person if his total gross receipts in the profession do not exceed one lakh fifty thousand rupees in any one of the three years immediately preceding the previous year, or, where the profession has been newly set up in the previous year, his total gross receipts in the profession for that year are not likely to exceed the said amount. (2) The books of account and other documents referred to in sub-rule (1) shall be the following, namely:- (i) a cash book;(ii) a journal, if the accounts are maintained according to the mercantile system of accounting;(iii) a ledger;(iv) carbon copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the person, and carbon copies or counter foils of machine numbered or otherwise serially numbered receipts issued by him: Provided that nothing in this clause shall apply in relation to sums not exceeding twenty-five rupees;(v) original bills wherever issued to the person and receipts in respect of expenditure incurred by the person or, where such bills and receipts are not issued and the expenditure incurred does not exceed fifty rupees, payment vouchers prepared and signed by the person. Provided that the requirements as to the preparation and signing of payment vouchers shall not apply in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred by him. 3) A person carrying on medical profession shall, in addition to the books of account and other documents specified in sub-rule (2), keep and maintain the following, namely:- (i) a daily case register in Form No.3C;(ii) an inventory under broad heads, as on the first and the last day of the previous year, of the stock of drugs, medicines and other consumable accessories used for the purpose of his profession. |
| 194I |
Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof. Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. |
| 194H |
Any person, not being an individual or a Hindu undivided family, who is responsible for paying, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the specified rate. |
| 194J | 194J: Any person, not being an individual or a Hindu undivided family who is responsible for paying to a resident any sum by way of (a) fees for professional services, or (b) fees for technical services (ba) any remuneration or fees or commission other than those on which tax is deductible under section 192, to a director of a company, or (c) royalty, or (d) any sum referred to in clause (va) of section 28 shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct at the specified rate of such sum as income-tax on income comprised therein. ‘Professional Services’ means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section. |
Important judicial pronouncements and Circulars
| Case Reference | Judicial ruling |
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2013 (11) TMI 145 ITAT CHENNAI Assistant Commissioner of Income tax versus Harvey Heart Hospitals Ltd. |
The assessee has not shown any nexus between the research carried on by the doctors and the business of the assessee – The assessee has not furnished any details of expenditure and the outline of research and development carried out in the course of carrying on of its business – A general claim that the company has carried on research and development is not sufficient to allow the expenditure. |
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2012 (6) TMI 620 Punjab and Haryana High Court Commissioner of Income tax versus Kap Scan and Diagnostic Centre P. Ltd |
The commission paid to private doctors for referring patients for diagnosis could not be allowed as a business expenditure. The amount which can be allowed as business expenditure has to be legitimate and not |
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2010 (12) TMI 212 ITAT, AHMEDABAD ITO versus Apollo Hospitals International Ltd. |
The terms and conditions in respect of the doctors who are under FGCs (Fixed Salary and Guarantee money) are not akin to the salaried employees. Their relationship with the hospital, thus, cannot be said to be an employer employee relationship. Thus the deduction of tax at source is required to be made as per section 194J of the Income Tax Act. |
| The Hon’ble ITAT – Kolkata,
Suraksha Diagnostic & Eye centre vs Department of Income Tax143 |
In the instant case, it was held that the amount paid towards purchase of computer software could not be treated as amount paid towards fees for technical services. Hence, the purchase of computer software is capital expenditure and not allowable under the Income Tax Act. |
| CBDT Circular |
As per circular number 5 of 2012 dated1 August 2012 issued by CBDT (para 1 and para 2) freebies like gifts, travel facility, hospitality, cash or monetary grant provided to the medical practitioners and their professional associations mainly by the pharmaceutical industries including health sector organization is also taxable as business income or income from other sources depending on the facts of each case. |
(Republished with Amendments)
my query for tax benefit under rule 3A(1) as per following description
Disease of ailment of the heart, blood, lymph glands, bone marrow, respiratory systems endocrine requiring SURGICAL OPERATION
thus it menas that tax benefit will get in case of surgical operation only kindly cleare