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Medical Reimbursement: Allowance and Exemption

Overview

The actual amount which an employee receives from his employer from reimbursing medical bills is called Medical Reimbursement. The reimbursement of medical expenses incurred in tax-free extends up to Rs.15, 000. It is different from medical allowance as it is not an amount given by an employer to his/her employee for medical expenses. The reimbursing Medical bills and the hospital where the beneficiary or his/her dependent admitted must be approved by authorities such as central, state, any local authorities, and employer or by the chief commissioner of Income Tax.

What is Medical Reimbursement?

Medical reimbursement refers to the actual amount that an employer gives to his or her employees when they submit medical bills for the treatment availed. Medical reimbursement is applicable for his spouse, children and for his own. Reimbursement of medical expenses incurred by an employee to his/her employer is tax-free up to a limit of Rs. 15,000. These medical bills should be submitted before 30th January to the concerned office. If these bills are not submitted before the deadline, then 30% of the maximum limit i.e. 15,000 will be taxable.

However, at the time of filing ITR employees can claim 30% of the amount by submitting medical bills. If an employee has not submitted any medical bills and still the employer is not deducting taxes from the amount then it could result in TDS related penalties.

The difference between Medical Reimbursement and Medical Allowance

Most of the employees get confused between Allowance and Medical Reimbursement. The basic difference between the medical allowance and medical reimbursement is that medical allowance is a part of salary structure and medical reimbursement is a benefit which they receive from an employer after submitting their original medical bills.

Page content

  1. Overview
  2. What is Medical Reimbursement
  3. Medical Reimbursement and Medical Allowance
  4. Rules for reimbursing Medical Bills
  5. Conditions to claim Medical Expenditure
  6. Taxes for payment of Medical Expenditure outside India
  7. Fixed Medical Allowance
  8. Conclusion
  9. FAQ's on Medical Reimbursement

Medical Allowance is the fixed amount paid by an employer every month as a part of the monthly salary which is taxable. For claiming benefits under this allowance no medical bills are required to be submitted.

While Medical Reimbursement is a perquisite which is tax-free up to a certain limit, it is exempted up to the amount 15,000 or less.

For Example – Mr. Aman works for XYZ Pvt. Ltd. He has incurred Rs. 10,000 medical expenditure on his spouse in that financial year. Now, he must submit his original medical bills of Rs.10, 000 to XYZ Pvt. Ltd. to claim his tax exemption. This will bring down his taxable income by Rs. 10,000 in the current financial year.

If Mr. Aman incurs an expenditure of Rs. 30,000 instead of Rs. 10,000 during the financial year and has submitted the medical bills to his employer and had reimbursed the full amount. Then, the Income Tax Exemption of Rs. 15,000 can only be claimed by Mr. Aman and the remaining 15,000 will be taxable as per the income tax slab rates.

Rules for reimbursing Medical Bills

If all bills of medical treatment are submitted by an employee to his or her employer then no tax is levied on medical reimbursement of Rs. 15,000 as per Clause (b) of Section 17(2) of the Income Tax Act, 1961. An employee can claim medical reimbursement for his own (self) and for his family members. Family members include spouse, parents, children, and siblings (dependent). Medical Expenditure incurred by an employee on his parents outside India is fully exempted as per Clause (VI) of section 17 (2) of the Income Tax Act, 1961.

Medical Reimbursement of an employee or his family members is not taxable if medical treatment is carried in any of the following hospitals which are maintained or approved by:

  • Central government/ state government/ local authorities.
  • Employer
  • Chief Commissioner of Income Tax.

Conditions to claim Medical Expenditure

Under the income tax Act, 1961 there are certain conditions specified for claiming Medical expenditure:

  • Any amount spent on the medical treatment of an employee.
  • The amount spent on the treatment of his or her family members (dependent).
  • The amount spent should be reimbursed by the employer.
  • The maximum amount that is to be reimbursed should not exceed Rs. 15,000 for every financial year.

An employee can claim medical expenditure for the current financial year. He cannot claim medical expenditure related to previous years.

Taxes for payment of Medical Expenditure outside India

  1. Expenses incurred on the medical treatment of employees or his or her family member outside India is tax-free to a certain limit. The RBI decides the exemption limits.
  2. Bills incurred on the medical treatment of attendant hired or arranged to accompany the patient during the treatment is also a tax-free perquisite. It is exempted to a limit permitted by RBI.
  3. Travel expenses incurred on the patient and one attendant who was hired to accompany the patient is tax-free. These expenses are tax-free for those employees only whose total gross income for the financial year is less than Rs.2, 00,000.

Fixed Medical Allowance

Central Government Pensioners residing in areas, not under Central Government Health Scheme (CGHS) have been granted a fixed medical allowance of Rs.500. Fixed medical allowance is fully taxable even if it involves some expenditure for medical treatment of an employee. Fixed medical allowance is not covered into aforementioned exemption and so it is taxable. While, reimbursement of medical expenditure incurred is not taxable up to Rs.15, 000. It is advised to take Medical reimbursement instead of taking a receipt of Fixed Medical Allowance.

Conclusion

Medical reimbursement is the actual amount which an employee receives from his employer, whereas Medical Allowance is the fixed allowance paid to an employee by his/her employer on monthly basis and it is taxable. Employees can also claim medical expenditure outside India. The Medical Reimbursement bills should be issued from an authorised hospital, bearing the name of the beneficiary or his/her dependent only.

Frequently Asked Questions

Q. How can an employee claim Medical reimbursement?
To claim Medical Reimbursement, the employee should submit his or her original medical bills to the employer during the end of the financial year.
Q. How much amount can be claimed by an employee?
An employee can take the tax benefit of Rs.15, 000 of the actual amount incurred by him. This exemption is only available to an individual on the reimbursement of actual expenses that are incurred on medical bills.
Q. Can medical expenditure be claimed for previous years?
An employee can claim medical expenditure for the current financial year only; medical expenditure for previous years cannot be claimed.

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