Income tax assessment issues of private hospitals, nursing homes etc.

Auditing requirement for private hospitals, nursing homes etc.

• When the total income of an entity for the previous year exceeds the maximum amount not chargeable to income-tax in respect of the following entities (irrespective of the exemptions available under the provisions referred to against such entity), the entity’s Must have his accounts audited in Form 10BB.
• Section 10(23C) refers to (via) hospitals and other medical institutions (other than those sponsored wholly or substantially by the Government or having an annual income of less than one crore).
• These entities shall obtain a report in Form 10BB from a Chartered Accountant using the format of Audit Report prescribed in Form No.10BB under Rule 16CC.
• Audit reports must be filed online. Filing a tax return is a legal requirement. [Proviso to rule 12(2)]
• Hospitals and other medical institutions covered under section 10(23C)(via) will be bound to file their income tax returns.

Running and maintaining a chemist shop in a hospital

• The Chief Commissioner of Income Tax has accepted that the excess received by way of operation of a pharmacist store is used for hospital purposes, thus making the application for permission u/s 10(23C)(Via) the following cannot be rejected on the basis of He runs a chemist shop in the hospital. Operating a chemist store is a secondary or ancillary activity for the primary mission and purpose of running the hospital. In this scenario, the primary goal of the trust is not to run a chemist store. [Baun Foundation Trust v. Chief CIT and Others, 2012 (Bombay)]

Payment made by the assessee to hospitals for medical services supplied by hospitals was subject to TDS under section 194J as the assessee-trust acts as a nodal agency for the State of Andhra Pradesh in providing health care coverage to individuals. Was.

• The assessee was a trust set up by the State of Andhra Pradesh to serve as an independent nodal agency of the State Government in providing health care coverage to citizens through a medical insurance scheme.
• For the purpose of management of the scheme, the assessee made payment directly to various hospitals as per the MoUs signed with them. The Assessing Officer used section 194J to hold the hospitals liable to withhold tax at source while making payments under section 194J.
• The order of the Assessing Officer was confirmed by the Commissioner (Appeals). By virtue of the provisions of section 194J, both the assessee and the hospital, to whom the payment was made, constitute a ‘person’ expressly defined under section 2(31), and the services provided by hospitals, medical services Being, was also covered under it. Scope of professional services as defined under section 194-J.
• Consequently, there should be no doubt about the need for the assessee to deduct tax at source while making payments to hospitals. However, of every payment made by the assessee to hospitals, charges for professional services only were covered by section 194J and not the cost of bed, medicines, follow-up services, outpatient services, transportation expenses, and other similar payments. part was covered. ,[Partially in the assessee’s favour] [Arogya Sri Health Care Trust v. ITO (TDS) (ITAT Hyderabad)]

The assessee-hospital appointed certain doctors on monthly remuneration basis, and the doctors were subject to the assessee-serving hospital’s rules; The remuneration paid was taxable as “salary” and subject to tax deduction under section 192.

• On the ground that the doctors were appointed as consultants and there was no employer-employee connection, the assessee-hospital was deducting TDS from the payment made to him under section 194J. However, it was clear from the appointment orders issued to the doctors that they were paid a certain compensation, which had nothing to do with the money earned from the patients treated by them, and that they were in line with the assessee’s service norms. were subordinate.
• Further, the appointment order stated that it was a contract for work and the doctors were required to retire at the age of 58. The remuneration of doctors was taxed under the heading Salary, and was subject to tax deduction under section 192. Instead of the provisions of section 194J. [DCIT v. Wockhardt Hospitals Ltd. (2013) (ITAT Hyderabad)]

CBDT circular number 5 states that any claim for expenditure incurred in giving free bees to physicians is inadmissible in contravention of the Medical Council of India (Professional Conduct, Etiquette and Ethics) Regulations, 2002. (Circular No. 5 of 2012, issued on 01.08.2012)

• The Medical Council of India, acting under the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002, shall not give to any physician or his professional associates any medicine or any gift by way of medicine, travel facility, hospitality, cash or Banned from accepting monetary grants. Allied health sector industry.
• This is a truly beneficial legislation which is in the best interest of both the patients and the general public. Section 37(1) comes into force after the Medical Council has exercised its authority to prevent this.
• As per Explanation to section 37(1), any expenditure incurred by an assessee for any purpose prohibited by law shall not be deemed to have been incurred for the purpose of business or profession.
• The sum and substance of the circular are also the same. Every individual assessee has the right to file an appeal under the Income Tax Act if the Assessing Authority does not understand the circular, but the circular which is fully compliant with section 37(1) cannot be held to be invalid. , [CBDT v. Confederation of Indian Pharmaceutical Industry (SSI) (2013)]

Deduction for expenses related to a specific firm [Section 35 AD]

• Section 35AD was first introduced in the Finance Act 2009 with effect from 1st April 2010 to offer incentives on investment in certain defined sectors (including healthcare sector).
• An assessee is entitled to a deduction for the entirety of any capital expenditure, only and exclusively, for the purposes of any specified business carried on by him during the previous year in which such expenditure was incurred: for the purposes of any defined business shall be allowed as a deduction at the specified rate for the previous year in which he commences the conduct of his specified business, if—
  • Expenditure is incurred before the assessee starts operations; And
  • The amount in the books of account of the assessee is capitalized on the date of commencement of operations by the assessee.
  • This provision applies to designated businesses in the nature of building and operating a hospital of at least 100 beds for patients anywhere in India.
  • In addition, capital expenditure does not cover the purchase of land, goodwill or financial instruments.

allow the potential for certain business or business expenses [Section 37]

• Any expenditure (not being expenditure of the kind referred to in sections 30 to 36 and not being capital expenditure or personal cost of the assessee) incurred wholly and exclusively for the purposes of business or profession is required to be computed as income taxable. shall be allowed under the head “Profits and gains of business or profession”. Further, any expenditure incurred by an assessee for any purpose which is an offense or 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. will not be given. , as per the Explanation below section 37.
• Section 37 of the Internal Revenue Code establishes the following conditions for claiming the general deduction: Expenses covered under Sections 30 to 36 of the Income Tax Act are not allowed to be claimed under Section 37 – pursuant to this section
  • If any expenditure is covered under section 30 to 36 of the Income Tax Act, it is not allowed to be claimed under section 37.
  • Capital Expenditure Not Allowed – For the purposes of this section, capital expenditures are expenses incurred in the acquisition, improvement or extension of the life of a fixed asset, whereas revenue expenditures are expenses incurred in the ordinary course of business.
  • Personal cost not deductible – This section explicitly forbids the deduction of any personal expense. Personal expenses are defined as any expenses that meet one’s personal needs and are not related to one’s career or business.
  • Such expenditure should have been paid or credited in the previous year – To claim the deduction, such expenditure must have been paid or accrued in the previous year, and the assessee should be able to demonstrate that such expenditure was done in the previous year or that anything happened in the previous year resulting in liability to the assessee. The expenditure should be incurred solely or primarily for the purpose of business or profession.
  • The primary requirement for claiming deduction under section 37 is that the expenditure is wholly and exclusively for the purpose of business or profession. The assessee can make expenses freely and without necessity, but they should be for the purpose of his business or profession. The expenditure should be for the business or profession of the assessee.
  • In order to claim deduction under this section, the expenditure must be incurred for the commercial or business purpose of the assessee in the previous year.
  • Illegal expenditure not allowed – Expenditure of an assessee for purposes which are offensive in nature or prohibited by law, are not deemed to have been incurred for business or profession and recognized as deduction under section 37 is not received.

Disqualification under section 40(a)(ia)

• As per section 40(a)(ia) of Income Tax, any sum payable to a resident subject to deduction of tax at source is liable to exemption of 30% if it is paid without deduction of tax at source or if tax is deducted but not deposited with the Central Government before the due date of filing of return.
• Any interest, commission or brokerage, rent, royalty, fee for professional services or fee for technical services payable to a resident, or sum payable to a contractor or sub-contractor, being a resident, for carrying out any work (including supply of labor for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has been paid, of income from business in the case of any assessee The calculation will not be deducted.

If the payment of the assessee or the aggregate payment in a day to any person, Other than a payee check of an account issued on a bank or account payee bank draft, exceeds Rs. 20,000, no deduction will be given. [Section 40 A(3)]

Payment or aggregate payment made in a day to a person, other than by way of bank or account payee bank draft or bank account by use of electronic clearing system, which exceeds Rs 20,000, is disallowed under section 40A(3) . ) of the Income Tax Act 1961.

What does “philanthropic purpose” mean?

For this reason, the term “philanthropic purpose” refers to actions that promote goodwill toward mankind or are useful to humanity as a whole, as opposed to activities that benefit only a few individuals. Philanthropy is not limited to providing free care to the poorest of the poor, but it also includes providing low cost treatment to people who are not poor but cannot pay the full cost. Further, there is no bar on giving preferential treatment to employees – [Breach Candy Hospital Trust v. Chief CIT (2010)] The claim of exemption cannot be denied on this ground