What kind of medical expenses deduction can an employee claim? This article explores that in detail.
A lot of health benefits have become available to employee these days & with stretched working hours, job 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 Rs.15,000 on medical reimbursements paid by employer.
What is the Eligibility to Claim Medical Expenditure?
Under the Income Tax Act, specific conditions have been specified so that such expenditure is not considered as a perquisite in the hands of the employee:
i) Employee should have spent the amount on medical treatment;
ii) The amount should have been spent on his own or his family* members’ treatment;
iii) Such amount should be reimbursed by the employer;
iv) Amount reimbursed by 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 of the individual.
How much amount can be claimed?
As mentioned above, if the following 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.
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?
Therefore, to determine whether the expenses have been actually incurred, the employee must submit original medical bills to its employer during the end of financial year.
Difference between Medical Allowance & Medical Reimbursement
Most of the employees get confused between medical allowance part of the salary structure & medical reimbursement which they receive from 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. For 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 reimburses 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.
Can the employee claim medical expenditure related to previous years?
The employer can reimburse to the employees only the medical expenditure which is 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 taking income tax exemption as medical reimbursement. Mediclaim premium paid can be taken as a income tax deduction u/s 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 is availed at hospitals, clinics etc. maintained by the employer, or Government or local authorities,or hospitals approved under Central government health schemes.