Income Tax Medical Bills Exemption

If you are a salaried professional, you can save huge chunks and portions of your income by claiming for a medical reimbursement or your medical bill. Every employer provides a certain compensation as travel allowance and medical allowance.

According to the Union Budget 2018, a standard deduction of Rs 40,000 was proposed for all salaried employees with regard to travel allowance and medical reimbursement. The standard deduction will essentially replace the current annual medical reimbursement of Rs 15,000 and transportation allowance of Rs 19,200. From FY 2019-20 onwards, the standard deduction has been raised to Rs. 50,000.

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The Income Tax Act allows individuals to claim various tax deductions and tax exemptions. A prominent exemption pertains to medical expenses incurred by an individual, for self and family, during a given financial year. Medical bills of salaried employees, reimbursed by employers, are not taxable. You do not have to pay tax on up to Rs.15,000 in a financial year if you submit medical bills for the same amount to the employer. The main conditions for claiming this exemption are:

income tax medical bills exemption
Income Tax Medical Bills Exemption
  • Medical bills incurred for self, spouse and children can be submitted for reimbursement. Medical bills of parents and siblings who are wholly dependent on the employee can also be claimed as reimbursement.
  • These bills could be for the purchase of medicines from pharmacies and medical shops, or medical treatment taken at public or private hospitals and clinics.
  • Medical bills should be reimbursed by the employer. You cannot submit medical bills to the IT department to claim reimbursement during the income tax return-filing process.

Medical Reimbursement Versus Medical Allowance

Medical expenses of a salaried employee are generally covered by a company in 2 ways:

  • Reimbursement
  • Fixed medical allowance

Medical Reimbursement

Many companies allow employees to submit their medical bills and reimburse the expense incurred by them. Some companies even have tie-ups with hospitals and clinics where the employees can get medical treatments done and then reimburse the expenses. It is this reimbursable amount, submitted to the employer with bills and receipts, which is tax-free. Key points are:

  • You can claim tax exemption only up to Rs.15,000 per year.

    If you have spent more than Rs.15,000, the excess amount is taxable (even if the company reimburses the excess amount). If you have spent less than Rs.15,000 then only the incurred expense is tax-free. E.g. if your medical expense in a year, with supporting bills, was Rs.9,000, you will get a tax exemption of Rs.9,000 only out of the Rs.15,000 allowed.

  • If you do not produce any medical bills to support your claim for reimbursement, the entire Rs.15,000 is taxable.

Medical Allowance

Some companies give medical allowance to its employees. This is a fixed regular benefit that an employee gets every month. If you are being paid a medical allowance, you cannot claim reimbursement from the company to reduce your taxable income. This medical allowance is fully taxable under the head ‘income from salaries’.

Benefits of Medical Reimbursement:

The main benefit of medical reimbursements is that it helps reduce taxable income of employees. The downside, though, is that in order to avail the tax benefits, medical bills worth Rs.15,000 need to be submitted.

Reducing Taxable Income through Medical Reimbursement - Example

Ravi works for a company where his salary slip is as given below. He is paid a sum of Rs.1,250 every month under ‘Medical’.

Employee No - 1234 Name - Ravi Bajaj
Joining Date - 21/2/2016 PF No - SB/AYE/1325746/132/1327465
BASIC 20,000 PF 2,400
HRA 8,000 PROFESSIONAL TAX 200
CONVEYANCE 2,500
SPECIAL ALLOWANCE 4,000
MEDICAL 1,250
LTA 3,000
Total Earnings 38,750

He falls ill for a few weeks and his medical treatment cost him Rs.8,000. He can submit the bills for this amount for reimbursement from the company. This will bring down the taxable income by Rs.8,000. The balance amount of Rs.7,000 will be taxable.

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