Medical reimbursement, Medical Allowance and Tax Exemption Claim.

Government Employee for their annual Medical Check-up or major/minor Injury paid Medical Bills and after that they claim as Medical reimbursement to Government. When the claim was passed by the Government, Employee got benefit of it. In this regard Government has said they would no longer have to pay income tax on money drawn from welfare funds for annual medical check-ups. The Central Board of Direct Taxes (CBDT) has issued a notification in this regard. As per the notification, no income tax will be levied “to meet the cost of annual medical tests or medical check-ups of the member, his spouse and dependent children” if money is drawn from the welfare fund to meet the expenses.

Medical allowance :
According to I-T Act, any allowance received by an employee is fully taxable unless specifically exempted. Thus, allowance per se is taxable in all cases, except those specifically exempted. For instance: HRA (house rent allowance) is exempt up to the extent specified in Section 10(13A). Monthly allowance is not specifically exempted so it is added to the salary as a perquisite and fully taxable.

‘Medical allowance’ is a fixed allowance paid every month to employees irrespective of the fact whether they submit the supporting bills or not. ‘Medical reimbursement’ is a payment made to employees against medical bills produced by them subject to their entitlement. The maximum tax benefit available is Rs. 15,000 per annum. Under this head, one may avail for reduction in the taxable income for a maximum of or up to Rs. 15,000 for medical expenses during each financial year.

Medical reimbursement :
Reimbursement by an employer of medical expenses incurred by an employee is generally tax-free. Where an employee is allowed to get reimbursement for the medical expenses incurred by him or his family members, the entire amount of reimbursement is tax-free and is not treated as a taxable perquisite. For medical reimbursement, Rs 15,000 is the maximum tax break that an individual can avail of against original bills. This exemption is given to the employee only if the medical expense is actually incurred on his medical treatment or his family members—who are dependent on him. Family members include spouse, children, parents, brother or sister of the employee.

If person is not providing medical bills and are taking medical allowance, the entire amount would be taxable. After verification of bills employer reimburses employee, subject to pre-decided limits. Medical reimbursement up to Rs. 15,000 p.a. is exempt from Income Tax.

Medical reimbursement comes under Section 80D, where the maximum limit is Rs. 15,000 per annum. These bills usually have to be submitted on or before January 30 to your office. If you had not paid the bill then 30% of Rs. 15,000 will be considered as a taxable amount. But while you are filing the tax return, that time you can show the bills as an exception and claim the 30%.

Remember, it is the employer’s responsibility to pay medical reimbursement only against authentic bills to claim exemption from Income Tax. This reimbursement is open to audit and scrutiny by both tax auditors and I-T Department.

Process to claim tax benefit on your medical expenses is -
Awareness –

Know the various income tax sections available to claim tax benefits on your medical expenses
Documentation –

Keep records of your medical expense, like medical bills, doctor prescription, etc
Benefit Period –

Medical expenses tax exemption are on financial year basis. That is your tax exemptions need to be claimed within the financial year in which your medical expenses occurred. Medical expenses cannot be carried forward to subsequent financial year for claiming tax exemptions in subsequent financial year
Expense Reporting –

Submit all your medical expenses data and documents to your company payroll or CA before end of financial year. So that your exemptions for tax savings is accommodated in your taxation before the end of financial year. Do not wait till end of financial year, and then try to claim tax refund from Income Tax Department. As getting tax refund is tedious and takes its own time running into months to years

1. The fixed medical allowance given to an employee is taxable.

2. Medical reimbursement done to an employee by an employer is not taxable in the hands of an employee, if treatment of the employee or his family member is done in any of the following hospitals:

• Hospital maintained by an Employer
• Hospital maintained by Central Government or State Government or Local Authorities
• Hospital approved by Government for its employees
• For certain prescribed diseases/ailment, hospital approved by the Chief Commissioner of Income Tax.

The reimbursement in (a) to (d) shall be tax free without any upper ceiling or cap.

3. In respect of reimbursement of medical expenses reimbursement done to an employee for treatment in any hospital other than those covered in (a) to (d) above, there is a maximum cap of Rs. 15,000/-.

With above basic idea the reply of the queries are as under:

• In general, Medical reimbursement up to Rs. 15,000/- is tax free. There is no bar of having an allopathic treatment only for claiming an exemption. Exemption can also be claimed for Homeopathic Medical treatment.
• Fixed medical allowance is taxable. Subject to maximum cap of Rs. 15,000/-, reimbursement of medical expenses supported by bills / vouchers are exempt from income tax