Medical Allowance & Reimbursement: Difference, Exemption, Claim

By Hiral Vakil on March 6, 2020

What is Medical Allowance?

Medical allowance is a fixed allowance provided to employees of the company on a monthly basis to cover any medical expenses. Medical allowance is paid irrespective of whether any proofs of expenses have been submitted by the employee or not. However, in order to claim tax benefits, an employee must submit medical bills.

Medical Allowance vs Medical Reimbursement

Sometimes people use the words Medical Allowance and Medical Reimbursement interchangeably. Although both medical allowance and medical reimbursement are meant to be paid to employees against the medical expenses incurred by them, the tax implication is different for both.

Medical Allowance is paid on a monthly basis as a part of salary and is completely taxable irrespective of any submission of expense proof. So an employee does not have to submit any medical bills to the employer in order to receive a medical allowance. It is paid to him as a monthly fixed amount which is part of his salary.

Tax Exemption on Medical Reimbursement

Medical reimbursement is tax-free to a certain extent. As per section 17(2) of the income tax act, reimbursement against medical expenses of Rs. 15,000 in a year is exempt from tax.

From FY 2018-19 onward, Medical Reimbursement has been discontinued. Instead, Standard Deduction up to Rs. 40,000 has been introduced for all salaried employees. Standard Deduction up to Rs. 50,000 is allowed from FY 2019-20 onwards.

How to claim Medical Reimbursement?

  • An employee has to submit proof of medical expenses to claim exemption.
  • An employee can claim the medical expenses for himself as well as his family members. Family for the purpose of reimbursement includes:
    • Spouse and children
    • Parents, brothers, and sisters who are wholly or mostly dependent on the employee.
  • Medical bills can be related to purchase of medicines, medical checkups, doctor’s consultation fees, etc.
  • There are no restrictions in terms of medical systems used, be it allopathy, homeopathy or any other type of treatment.
  • Medical reimbursement is not taxable if the treatment of an employee or his family member is undertaken in any of the following facilities:
    • Hospital or clinic maintained by an employer
    • Hospital or clinic maintained by state government/central government/local authority
    • Hospital or clinic approved by Government
    • Hospital approved by Chief Commissioner of Income Tax

Frequently Asked Questions

1. Is the medical allowance taxable?

Medical Allowance is completely taxable. However medical reimbursement up to Rs. 15,00 is not taxable.

2. Is medical reimbursement taxable?

Medical reimbursement up to Rs. 15,00 is not taxable up to FY 2017-18. However, from FY 2018-19 onwards medical reimbursement has been discontinued.