Updated on: May 19th, 2025
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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
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.
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.
Medical reimbursement to employees is considered a tax-free perquisite in the hands of employees if the following conditions are fulfilled:
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:
*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.