Medical Allowance & Reimbursement : Difference, Exemption & Claim

What is Medical Allowance?

Medical allowance is a fixed allowance provided to employees of the company. It is given on a monthly basis to cover any medical expenses. It 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 payable to employees against the medical expenses of the employees. The tax implication is different for both.

Medical Allowance is payable on a monthly basis as a part of the salary. However, it is completely taxable irrespective of any submission of expense proof under the head Salary Income. 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.

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

Who is Eligible to Claim Medical Reimbursement?

There are specific conditions under the income tax act that prescribe such expenses are not considered as a prerequisite in the hands of the employee:

  • Employees should have spent the amount on medical treatment
  • The amount should have been spent on his own or his family members’ treatment.
  • Such amount should be reimbursed by the employer
  • Amount reimbursed by the employer does not exceed INR 15,000 in the financial year

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 the purchase of medicines, medical checkups, doctor’s consultation fees, etc.
  • There are no restrictions in terms of medical systems. (allopathy, homeopathy, or any other type of treatment)
  • Medical reimbursement is not taxable if the treatment of an employee or his/her family member takes place in any of the following facilities:
    • Hospital or clinic
      • Maintained by an employer
      • Maintained by state government/central government/local authority
      • Approved by Government
    • Hospital approved by Chief Commissioner of Income Tax
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What Amount can be Claimed?

The employee can take the tax benefit of the expenditure incurred by him limited to the extent of INR 15,000. The 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.

FAQs

Is the medical allowance taxable?

Medical Allowance is completely taxable. However, Medical reimbursement up to INR 15,000 is not taxable up to FY 2017-18. However, from FY 2018-19 onwards medical reimbursement has been discontinued.

How do I show medical reimbursement in ITR?

Medical Reimbursement is tax-free perquisites under Section 17(2) till INR 15000. However, the employee can incur an amount higher than INR 15,000 on the medical bills. In this case, the excess amount is added to the head salary of the employee at the time of filing ITR on Income Tax Portal.

What is covered under medical reimbursement?

Eligible medical expenses are the costs of diagnosis, cure, mitigation, treatment, or prevention of disease, and the costs for treatments affecting any part or function of the body. These expenses include payments for legal medical services rendered by physicians, surgeons, dentists, and other medical practitioners.

Got Questions? Ask Away!

  1. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

  3. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.

  5. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

  6. Hello,

    Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?

    There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?

    I couldn’t find anything on this. Any help is appreciated.

  7. Hello @Veejayy,

    Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.

    Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.

    These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!

    Also, interest earned on these bonds will be taxable.

    Hope this helps!

  8. Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total

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