Exemption on Medical Reimbursement

Employers provide the taxpayers the option to reimburse any medical expenses incurred. The Income Tax Department does not charge any tax for medical reimbursements of up to Rs.15,000. This option is also offered for certain family members.

Medical reimbursement is an advantage given by some employers where taxpayers are allowed to reimburse medical expenses incurred at a hospital. The entire reimbursement is however, tax free.

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Exemption of up to Rs.15,000:

There is no income tax levied by the Income Tax Department on medical reimbursements of up to Rs.15,000. The exemption allowed is the cumulative exemption for the fiscal year, on the total amount incurred by the taxpayer for getting any medical treatment of self or any member of family.

Medical reimbursement is covered for the following family members:

  • Employee’s spouse or children, wherein children could be independent, unmarried, dependant or married.
  • Employer’s sisters, brothers and parents who are completely dependent on the employee.

Conditions for Reimbursement

The following conditions should be followed in order to reimburse the medical expenses:

  • To be able to facilitate this advantage, the employee must submit all the bills incurred for the same, to the employer.
  • The bills furnished by the employees may or may not belong to government hospitals or any specific hospital.
  • Bills of private clinics or hospitals can also be presented for tax-free medical reimbursements.
  • If an amount higher than Rs.15,000 is incurred on the medical bills by the employee, the excess amount is added to the head salary of the employee at the time of ITR filing. Income tax is liable on that amount as per the individual's’ income tax slab.

There are some other specific medical treatments which are considered to be tax-free reimbursements, however certain conditions must be met in order for those expenses to come under this category.

Tax-Free Prerequisites under Section 17(2)

Apart from medical reimbursement worth Rs.15,000 being tax-free, the following prerequisites are considered tax-free under Section 17 (2):

  • Bills incurred for medical treatment of employee or family members of the employee in a hospitals maintained by the employer.
  • Bills incurred for medical treatment of employee as well as his or her family members in government hospitals or hospitals maintained by local authorities or government approved hospitals.
  • Medical reimbursement given to the employer for a specific medical treatment for the employee or the employee’s family members. The prescribed diseases or ailments that are permissible for the reimbursement are listed in the Rule 3A of the Income Tax Rules. The list is provided to the hospitals by the Chief Commissioner of Income Tax.

In this case, the employee must attach a certificate issued by the hospital with the ITR filing. The certificate should state the ailment or disease, for which the medical treatment was given. The bill for the payment made to the hospital towards the same, should also be attached.

  • Bills incurred towards a part of the Insurance premium paid by the employer for the employee’s health and insurance. The health insurance premium should be a scheme approved only by the General Insurance Company.
  • Reimbursement towards insurance premium for the employee or any member of the employee’s family under a scheme which is approved by the General Insurance Corporation of India for Section 80D.

Tax-Free Prerequisite for Medical Treatment Abroad

Given below are the tax-free prerequisites for medical treatment availed by the employee or his or her family members abroad:

  • Expenses incurred on the medical treatment of the employee or any member of the employer’s family, abroad is tax-free to a certain limit. The extent of the expenses considered as tax-free prerequisite is decided by the Reserve Bank of India.
  • Bills incurred on the medical treatment for the employee or a family member of the employee, along with an attendant, hired or arranged to accompany the patient during the treatment.
  • Travel expenses of the patient, who is the employee or a family member of the employee as well as the patient’s attendant is tax-free. However, the expenses are only tax-free if the employee’s income is lower than Rs.2,00,000.

The travel expenses of the patient/employee and the attendant are taxable if the gross salary of the employee is over Rs.2,00,000.

Difference between Medical Reimbursement and Medical Allowance

Apart from the option of availing medical reimbursements, some employers also give medical allowance to their employees. Medical reimbursement means that the employee has to pay for the medical expenses by self and then present the bills to the employer, which is then reimbursed. Whereas, medical allowance simply means that the employee gets a pre-decided amount from the employer to be spent later.

However, it is important to remember that although there is no income tax levied on medical reimbursement for up to Rs.15,000, medical allowance given by the employer

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