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.
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.
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
- Hospital or clinic
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.
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.
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.
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.