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, to understand the deduction on medical reimbursement, read further.

What is Medical Reimbursement?

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.

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:

• 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 Rs 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 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.

How to Claim Medical Reimbursement?

• Spouse 
• Children
• Parents, sisters and brothers, wholly or mostly dependent on the employee
• Medical bills can be related to medical checkups, purchase of medicines, doctor’s consultation fees, etc.
• Medical bills can be submitted for treatment taken under any system, such as allopathy, homoeopathy, etc.
• Medical reimbursement is not taxable when the treatment of an employee or the family member takes place in any of the following facilities:
  • Hospital or clinic maintained by an employer, state government, central government or local authority 
  • Hospital approved by the government
  • Hospital approved by the Chief Commissioner of Income Tax

Conditions for Medical Reimbursement

Following are the conditions under which medical reimbursement is granted:

• The employer should submit all the medical bills to his/her employer.
• They need not belong to a specific or government hospital.
• Bills from private clinics are applicable for medical reimbursement.
• If the medical bill is greater than Rs 15,000, the excess amount will be added to the salary of the employee to their taxable income at the time of filing the ITR.

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, 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.