Income Tax

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

Allowances and reimbursements to employees have become prevalent in the corporate world. Among such assistance from the employers, employees also enjoy medical benefits which include reimbursement of medical expenses of the employee, spouse, or their children. Such reimbursements are known as Medical Reimbursements, under which employers reimburse the share of the health expenditures sustained by the employee. Exemption of not more than Rs 15,000 is allowed by the Income Tax Act on medical reimbursements remunerated by the employer.

Medical Reimbursement versus Medical Allowance

A general myth flies around that Medical Reimbursement and Medical Allowance tend to be the same thing. However, these two terminologies have been gently separated from each other under the Income Tax Act. Medical Allowance is the fixed component of an employee’s monthly salary, which requires no submission of any bill or any sort of illness to occur. An employee receives medical allowance along with salary, and therefore, it is taxable (as salary Income). However, Medical Reimbursement is an allowance that can be claimed by an employee only in a scenario where a medical expenditure has taken place either for the employee himself or his spouse/children. An employee is required to submit documents for claiming the same (such as medical bills and records). Medical reimbursement is dealt with under Section 80D, which prescribes the maximum limit to be Rs. 15,000 annually. If an employee fails to submit the medical bills regarding the same within the timeline, then 30% of Rs. 15,000 will be subject to taxability. Nevertheless, employees can retrieve 30% of the amount when filing tax returns, but the IT department¹ and auditors can scrutinize Medical reimbursement. It is important to note that the employers are responsible for initiating medical reimbursement once the employee has submitted the authenticated Bills for exemption(of tax). Moreover, no deduction in taxes on the concerned amount by the employer can lead to TDS-related.

Medical Reimbursement & Rules

In the Budget 2018, tax exemption for medical reimbursement of amounts up to Rs 15,000 was announced. No tax is imposed on medical reimbursement up to Rs. 15,000 if the provided bills by the employee to his or her employer are as per clause (b) of Section 17 (2) of the IT Act, 1961. This amount of Rs.15,000 is the collective exemption allowed in a financial year for medical expenses incurred by an employee either for themself or any of the family members. Family for the concerned purpose includes spouse, children (dependent or independent, single or married), parents, and siblings (wholly or mainly dependent). As per clause (VI) of Section 17 (2) of the IT Act, 1961, incurred medical expenditure of an employee or any of his family members outside India is entirely exempted from Tax. Moreover, no restrictions exist in terms of forms of treatment such as allopathic, homoeopathic, or other forms of treatment.

There are no taxes levied on medical reimbursement if an employee or his family member is treated in any of the following:-

• Hospital maintained by Employer
• Hospitals maintained by Central Government/ State Government/ Local Authorities
• Hospitals approved by the government
• Hospital was approved by the Chief Commissioner of Income Tax

Eligibility to claim Medical Reimbursement

The Income Tax Act set forth a certain set of criteria to be fulfilled. So that it is verified that the reimbursement made is not a prerequisite in the employee’s pocket and the road to malpractices is blocked:-

• Certain expenditures should have been made for medical treatment by the employee.
• The amount spent shall be for his own or his family (includes spouse, children, parents, and siblings (wholly or mainly) dependent on the employee). members’ treatment.
• Such an amount shall be subject to reimbursement by the employer.
• The reimbursed amount by the employer should not exceed Rs 15,000 (in the financial year).

When will the claim be granted?

 The medical reimbursement claim is granted when the following conditions are met:-

• All the medical bills shall be submitted to the employer by the employee.
• They do not have to belong to a specific/government hospital.
• Bills of private clinics are valid for medical reimbursement.
• If the bill exceeds Rs 15,000, the exceeded amount is to be added to the salary of the employee, which is taxable income (while filing the ITR).

How much of reimbursement is exempted?

Once the conditions are fulfilled, the employee can enjoy the tax benefit of the expenditure incurred by an employee up to Rs 15,000. This exemption only applies to the reimbursement of authentic expenses that are mentioned on medical bills. In short, only the actual spent amount can be reimbursed by an which is verified through medical bills. While medical allowance is entirely subject to taxes, medical reimbursements are not taxed if the reimbursed amount is up to Rs. 15,000. However, if an employee has been provided “medical allowance” in place of “medical reimbursement” for medical treatment, the amount will be a taxable component of his salary.

Learn to Calculate Medical Reimbursement

It is known that Rs. 15,000 is the maximum tax benefit that an employee can claim for medical expenditures. Expenditure beyond Rs. 15,000 is subject to taxes. For instance,

• Ana, a 28-year-old engineer, is qualified for medical reimbursement of Rs. 20,000.
• And therefore, has to present medical bills worth Rs. 20,000 to claim the medical reimbursement.
• Therefore, Ana’s tax benefit would be Rs. 15,000, even if she submits bills worth Rs. 20,000.

Conclusion

Employees are getting relief from taxes when it comes to their health. It is important to note that certain eligibility criteria and other requirements are being met to enjoy this benefit of exemption under Medical Reimbursement. It is recommended to the employees and any user of medical reimbursement to avoid assuming medical allowances with Medical Reimbursement as both are separate terminology, and mere assumptions might bring you under the taxation umbrella, leaving you with no option but to pay tax, even if you had a toll on your health.

FAQs

1. https://incometaxindia.gov.in/Pages/default.aspx