Medical Allowance is a fixed allowance paid to employees as part of their wage to cover their regular medical expenses.
Medical allowance is a fixed monthly payment granted to employees of a company regardless of whether they present bills to verify the expense or not. Medical reimbursement, on the other hand, is a payment paid to employees for specific medical expenses submitted by them, subject to entitlement. Employees who want to claim tax benefits should submit bills for the corresponding amount under medical reimbursement every month. Medical allowance is not classified as an exemption allowance under the IT Act of 1961. As a result, a medical allowance is a monthly set compensation supplied by an employer that is fully taxable. Employees can claim a tax deduction of up to ₹15,000 for medical expenses (payments for bills or supporting documents).
Medical Allowance is a set amount of money provided by the employer to his employees in order to meet their medical needs. This type of allowance is paid to the employee on a monthly basis, regardless of whether he submits his hospital bills. The part worth noting here is the tax deduction for medical expenses under “income from other sources.”
What is a Medical Allowance?
In simple terms, a Medical Allowance is a component of an employee’s salary that is provided by the employer to cover medical expenses. It is a financial benefit meant to assist employees in meeting medical costs.
What are the Types of Medical Allowances?
There are various types of medical allowances, including reimbursement of medical bills, fixed monthly medical allowances, and hospitalization allowances. These allowances differ depending on the employer’s policy.
What is the Eligibility to Claim Medical Allowance?
Eligibility for claiming a Medical Allowance depends on your employer’s policy. Typically, employees who incur genuine medical expenses are eligible. You may need to provide bills or receipts as proof of expenses.
What is the Exemption Under Medical Allowance?
Medical Allowance is partially exempt from income tax under Section 10 of the Income Tax Act, subject to certain limits and conditions. The exemption is intended to ease the financial burden of medical expenses for employees.
How to Calculate Medical Allowance
Calculating Medical Allowance usually involves determining the actual medical expenses incurred by the employee and the limit set by the employer’s policy or the Income Tax Act. The lower of the two values is usually considered as the Medical Allowance.
Please note that it’s essential to consult with a tax expert from Vakilsearch for accurate calculation of the tax exemption you can avail.
Medical Allowance and Medical Reimbursement
Many people confuse the terms ‘medical reimbursement’ and medical allowance,’ assuming they imply the same thing. However, the phrases incorporate various tax classifications under the Income Tax Act of 1961. According to experts, the correct terminology for the medical component of an employee’s salary should be “medical reimbursement” rather than “medical allowance,” because the allowance is taxable in several cases unless expressly exempted.
Section 80D governs medical reimbursement, with a maximum amount of ₹15,000 per year prescribed. If an employee fails to file medical reimbursement bills on time, 30% of the ₹15,000 will become taxable. Employees, on the other hand, can recoup 30% of the sum when filing tax returns. Auditors and IT department sleuths are looking into medical reimbursement. Employers are responsible for paying medical reimbursements once employees present valid bills to claim tax-exempt status. If an employer fails to deduct taxes on amounts for which no invoices are submitted, TDS-related penalties may apply.
Fixed Medical Allowance
Even though medical treatment includes expenses, a fixed medical stipend is known to be taxable for any employee. Pensioners under the Central Government who live in the CGHS district are entitled to a taxable permanent allowance of ₹500. An expenditure of up to ₹15,000 made by any employee or family member of the employee is refunded and not taxed. An FMA, on the other hand, is not covered by the exemption policy, hence the sum is taxable. As a result, it is recommended that employees do not file FMA and instead opt for medical reimbursement.
Health Insurance – Mediclaim Policy
Because the company normally only supplies Mediclaim for the employee, the employer can claim it on his corporate return.
Applicability for Medical Reimbursement
The following are the qualifications for receiving medical reimbursement from your employer:
- Medical expenses paid by the employee or his/her household members, including spouse, children, brother, or sister, are eligible for reimbursement.
- Treatment is available at both public and private hospitals/institutions.
- The hospital bill should be presented to the employer and should contain information on medical fees paid to doctors as well as expenses incurred for the purchase of medications.
- If the amount of the employee’s medical expenditure exceeds the allowance limit, the employer’s reimbursement is taxable as additional revenue.
Note: If the employee does not bring the bills or receipts with him/her, the employee will be unable to obtain reimbursement.
Procedure to Claim Medical Reimbursement
To claim medical reimbursement, the employee must submit all medical bills and receipts to the employer or organization. According to the Union Budget for the fiscal year 2018-19, new ideas and minor changes to Standard Deductions have been proposed for the benefit of employees. A standard deduction of ₹40000/- will be deducted from the employee’s annual income.
Standard Deduction
The standard deduction is a defined amount of deduction for both additional payments (transportation allowance) and medical reimbursement up to ₹40000/- per year that salaried taxpayers can deduct from their total income.
This deduction replaces the medical reimbursements of ₹15000 per year and the transportation allowance of ₹1600 per month, which are normally deducted from an employee’s gross yearly wage. Previously, an employee would receive a deduction of ₹15000/- per year for medical reimbursement and Rs.1600/- per month for transport allowance, for a total of ₹34,200/- per year.
Medical Reimbursement Rules
According to clause (b) of Section 17 (2) of the IT Act, 1961, no tax is imposed on reimbursement up to ₹15,000 if all bills are submitted by an employee to his or her employer. The cumulative exemption allowed in a fiscal year for fees incurred by an individual during medical care of himself or any of his members of the family is thus ₹15,000. For reimbursement purposes, an employee’s family includes his or her spouse and kids (dependent or independent, married or single) or parents and siblings (wholly or primarily dependent). Medical expenses incurred by an employee or any of his family members abroad are totally tax-exempt under clause (VI) of Section 17 (2) of the IT Act, 1961.There are no restrictions on allopathic, homeopathic, or other forms of treatment that can be used to claim exemption.
Medical reimbursements is not taxable if an employee or a family member receives treatment at any of the following hospitals:
- Hospital maintained by the employer
- Hospitals maintained by the Central Government/State Government/Local Authorities
- Hospitals that are approved by the Chief Commissioner of Income Tax
Calculating Medical Allowances
An employee can claim a maximum tax benefit of ₹15,000 for medical expenses.
As an example,
Arya, a 30-year-old software developer, is eligible for ₹30,000 in medical reimbursement.
Arya must therefore submit medical invoices totalling ₹30,000 in order to be reimbursed.
Even if he produces bills of ₹30,000, the tax benefit would be ₹15,000.
New Amendments in Taxability of Medical Reimbursement Amount
A standard deduction of ₹40,000 was introduced in Budget 2018 in place of a tax exemption for medical reimbursement of ₹15,000 and a transportation allowance of ₹19,200. As a result, it becomes effective in April 2018.According to Budget 2019, the standard deduction for the fiscal year 2019-20 will be ₹50,000.
In the following scenarios, medical reimbursement is not taxable:
In the instance that the employee or a family member gets treated in a hospital that is owned :
- By the Employer.
- Approved by the Chief Commissioner of Income Tax.
- By Central Government/ State Government/ Local Authorities.
- Approved by the Government.
Medical Reimbursement Form
Medical Reimbursement Form In some situations, employers will request a medical bills reimbursement form issued by the company where the employee is employed. The format of medical bill reimbursement varies for each firm.
Pensioners’ Medical Allowance
Pensioners can receive standard deductions of up to ₹40,000 under the modification implemented in the budget. The income tax authority has clearly indicated that a pension received by the taxpayer from the former employer should be permitted for a deduction of ₹40,000 when calculating taxable income. The standard deduction allowed for the fiscal year 2018-2019 would be carried over to the fiscal year 2019-2020.
Conclusion
If you need any signified information about different allowances and other related queries, Vakilsearch can help you. Get in touch with us today!
FAQs
Is medical allowance exempt from tax?
Medical allowance is usually taxable, but there are some exemptions available under Section 10 of the Indian Income Tax Act. According to the medical allowance exemption in Section 10, employees do not need to include the medical allowance they receive in their taxable income.
What is the exemption limit for medical expenses?
Healthcare reimbursement is exempt from taxation up to Rs. 15,000, even if the money was paid before the cost was incurred.
What expenses come under medical allowance?
Medical allowance is a set sum of money granted by your employer to facilitate you in covering medical expenditures. This allowance is frequently included in your total benefits package and may be provided monthly, quarterly, or annually.
Are premiums paid for health insurance eligible for tax exemption?
Yes, premiums paid for health insurance are eligible for tax exemption under Section 80D of the Income Tax Act. The exemption limit for health insurance premiums is Rs. 25,000 for individuals and Rs. 50,000 for senior citizens.
Can I claim tax exemption for medical expenses incurred for my family members?
Yes, you can claim tax exemption for medical expenses incurred for your family members. The exemption limit for medical allowances is Rs. 15,000 per year.
What documents do I need to submit to claim medical allowance exemption?
To claim medical allowance exemption, you need to submit medical bills and receipts to your employer as proof of the medical expenses incurred.
Are there any conditions or limits for claiming tax exemption on medical allowances?
Yes, there are conditions and limits for claiming tax exemption on medical allowances. The exemption limit for medical allowances is Rs. 15,000 per year, and the expenses must be incurred by the employee or their family members.
What other allowances are exempted from income tax?
Other allowances that are exempted from income tax include House Rent Allowance (HRA), Leave Travel Allowance (LTA), and Conveyance Allowance.
Is there a difference between tax exemption on medical expenses and a medical reimbursement policy?
Yes, there is a difference between tax exemption on medical expenses and a medical reimbursement policy. Medical expenses are exempted up to a limit of Rs. 50,000 per year, while medical reimbursement policies are tax-free up to a limit of Rs. 15,000 per year.
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