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.
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.
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.
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.
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:
Under the income tax Act, 1961 there are certain conditions specified for claiming Medical expenditure:
An employee can claim medical expenditure for the current financial year. He cannot claim medical expenditure related to previous years.
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.
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.