Tax Benefit To Employee On Medical Reimbursement Of Up To Rs 15,000

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

An employer or organisation that refunds the medical expenditure incurred for diagnostic disease or medical treatment of employees is called Medical Reimbursement. Medical Allowance and Medical Reimbursement differ, as medical reimbursement is the refund of the amount after treatment is completed. The reimbursement amount can partly or wholly cover the treatment cost. In contrast, medical allowance is a fixed amount paid monthly, quarterly, or yearly. Irrespective of treatment cost. Medical reimbursement may be tax-free under certain conditions.

What is Medical Reimbursement?

Many 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 refund the portion of the health expenses incurred by the employee, either himself or his spouse and children, whether married or dependent or not, and parents, sisters and brothers if wholly and mainly dependent on the individual.

Moreover, claiming medical reimbursement is not allowed under the new regime of the Income Tax Act. Therefore, deciding which regime is more beneficial for you becomes important.

What is the Eligibility to Claim Medical Expenditure?

Medical reimbursement to employees is considered a tax-free perquisite in the hands of employees if the following conditions are fulfilled:

• Medical expenditures are incurred for the self, spouse, and children , who may be dependent or married and unmarried, as well as parents, brothers, and sisters, wholly and mainly dependent on the individual. 
• Medical bills can be related to medical checkups, the purchase of medicines, doctor's consultation fees, etc.
• Medical bills can be submitted for treatment under any system, such as allopathy, homoeopathy, etc.
• Medical reimbursement is not taxable when the treatment of an employee or a family member takes place in any of the following facilities:
  • Employers, state governments, central governments, or local authorities maintain hospitals or clinics.
  • The government approves the hospital.
  • The Chief Commissioner of Income Tax approves the hospital.    
• Reimbursement of the premium of health insurance by the employer to employees and the employee's family is also a tax-free prerequisite in the hands of employees.
• Reimbursement of expenditure or sum paid by the employer to employees on the following:
  • Medical treatment of employees or any member of his family outside India.
  • Travel and stay of an employee or any family member for medical treatment outside India.
  • Travel and stay abroad for any attendant for the treatment of an employee or his family member.

Conditions for Medical Reimbursement

Under the Income Tax Act, specific conditions have been prescribed so that such expenditure is not considered as a taxable perquisite in the hands of the employee:

• Employees should have spent the amount on medical treatment.
• The amount should have been spent on his own or his family members’ treatment.
• Such an amount should be reimbursed by the employer.
• The amount reimbursed by the employer does not exceed the actual cost of medical treatment in the financial year.
• Providing sufficient document as proof of medical treatment
• The employees should submit all the medical bills to his/her employer.

*Family for the above purpose includes the 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.

Medical Reimbursement vis-a-vis Medical Allowance

Most of the employees get confused between the 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 if it fulfills certain conditions as discussed above.

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.