Updated on: Apr 5th, 2024
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2 min read
This benefit has been discontinued from F.Y 2018-19 onwards.
As per an amendment in the Budget 2018, tax exemption on medical reimbursement amounting to Rs 15,000 and transport allowance amounting to Rs 19,200 in a financial year have been replaced with a standard deduction of Rs 40,000. This amendment became applicable from FY 2018-19 (i.e. starting 1st April 2018). From FY 2019-20 onwards, the standard deduction has been raised to Rs 50,000. (Amended in Budget 2019) With reference to FY 2017-18, to understand the deduction on medical reimbursement, read further.
A lot of health benefits are available to employees these days & long working hours, work stress & other genetic factors, and medical expenses incurred on yourself, spouse, or children have become very common. Medical Reimbursement is an arrangement under which employers reimburse the portion of the health expenses incurred by the employee. The Income Tax Act allows tax exemption of up to Rs 15,000 on medical reimbursements paid by the employer.
Under the Income Tax Act, specific conditions have been prescribed so that such expenditure is not considered as a perquisite in the hands of the employee:
*Family for the above purpose includes spouse and children of the individual and parents, brothers and sisters of the individual or any of them, who are wholly or mainly dependent on the individual.
If the above conditions are satisfied, then the employee can take the tax benefit of the expenditure incurred by him limited to the extent of Rs 15,000. The exemption is available only on the reimbursement of actual expenses that are incurred on medical bills. An employer can only reimburse what is actually spent by the employee.
Following are the conditions under which medical reimbursement is granted:
Most of the employees get confused between medical allowance part of the salary structure & medical reimbursement which they receive from the employer after submitting their original medical bills. Medical allowance is a fixed component that you receive every month as part of your monthly salary, which is taxable as salary income. No bills are required to be submitted for taking this allowance. Medical reimbursement is a tax-free component, and as discussed above, it is exempted up to the amount spent by employees or Rs 15,000, whichever is less.
Example: Mr A works for ABC Pvt. Ltd. He incurs Rs 12,000 on medical expenditure on his spouse for medicines purchased during the financial year. Now, he has to submit original medical bills of Rs 12,000 to ABC Pvt Ltd to claim the income tax exemption. This will bring his taxable income down by Rs 12,000. Alternatively, in the above example, if Mr A had incurred Rs 25,000 during the financial year, submits bills to his employer & the employer reimbursed the full amount of Rs 25,000 as part of the salary income. Then, income tax exemption to the extent of Rs 15,000 can only be claimed by Mr A & the remaining Rs 10,000 part of his salary would become taxable as per the applicable income tax slab rate.
Tax exemption on medical reimbursement and transport allowance has been replaced with a standard deduction of Rs 40,000. The standard deduction has been raised to Rs 50,000 from FY 2019-20. Medical Reimbursement allows tax exemption of up to Rs 15,000 on expenses incurred by the employee. Conditions and process for claiming reimbursement are specified. Differentiate between medical reimbursement and medical allowance.