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Tax Benefit to Employee on Medical Reimbursement of up to Rs.15,000

Updated on: Jan 13th, 2023 - 7:11:17 PM

6 min read

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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 INR 15,000 and transport allowance amounting to INR 19,200 in a financial year have been replaced with a standard deduction of INR 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 deduction on medical reimbursement, read further.

 

What is Medical Reimbursement?

A lot of health benefits are available to employees these days & with long working hours, work stress & other genetic factors, 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 INR 15,000 on medical reimbursements paid by the employer.

What is the Eligibility to Claim Medical Expenditure?

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:

  • Employee should have spent the amount on medical treatment.
  • The amount should have been spent on his own or his family members’ treatment.
  • Such amount should be reimbursed by the employer.
  • Amount reimbursed by the employer does not exceed INR 15,000 in the financial year.

*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.

How much amount can be claimed?

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 INR 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.

How to claim Medical reimbursement?

One can claim reimbursement of medical expenses by submitting the original bills to the employer. The employer would accordingly reimburse such expenses incurred subject to the overall limit of Rs 15,000 without tax deduction.

Medical reimbursement vis-a-vis medical allowance

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, that is taxable as salary income. No bills are required to be submitted for taking this allowance. Whereas Medical reimbursement is a tax-free component and as discussed above, it is exempted up to the amount spent by employee or Rs.15,000 whichever is less.

Example: Mr. A works for ABC Pvt. Ltd. He incurs INR 12,000 on medical expenditure on his spouse for medicines purchased during the financial year. Now, he has to submit original medical bills of INR 12,000 to ABC Pvt Ltd to claim the income tax exemption. This will bring his taxable income down by INR 12,000.   Alternatively, in the above example if Mr A had incurred INR 25,000 during the financial year, submits bills to his employer & the employer reimburses the full amount of INR 25,000 as part of the salary income. Then, income tax exemption to the extent of INR 15,000 can only be claimed by Mr A & the remaining INR 10,000 part of his salary would become taxable as per the applicable income tax slab rate.

Frequently Asked Questions

Can the employee claim medical expenditure related to previous years?

The employer can reimburse the employees only the medical expenditure, incurred by the employee in the said financial year and not of any other previous years.

Can the mediclaim expenditure paid by the employee be considered for medical reimbursement?

Please note that the mediclaim premium paid is not considered as medical expenditure. Therefore, it cannot be considered for income tax exemption under medical reimbursement. Mediclaim premium paid can be taken as a income tax deduction Section 80D separately.

Exemption without any limit for expenditure incurred in certain circumstances?

There is no upper limit in case of reimbursements for medical expenditure incurred/ treatment availed at hospitals, clinics, etc. maintained by the employer, or Government or local authorities, or hospitals approved under Central government health schemes.

Is tax benefit on medical reimbursement discontinued?

Yes, since FY 2018-19 this benefit has been replaced by a standard deduction which currently stands at INR 50,000. 
 

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