Tax Benefit to Employee on Medical Reimbursement

Today employers provide many health benefits to their employees. Medical Reimbursement is one of that. Medical Reimbursement is an arrangement under which employers reimburse the portion of the health expenses incurred by the employee on obtaining medical treatment of self and any family member.

medical expenses reimbursementDon’t be confuse: In this article you will read about health benefits provided by employer to employee. There is separate article if you want to read about deduction under section 80D for mediclaim.

As per income tax act, there is no levy of income tax on reimbursement up to Rs.15,000 provided all the bills are furnished by the employee to employer. It is a cumulative exemption allowed in a financial year i.e. reimbursement of whole year are added.

The conditions specified under the income tax act, so that medical expenditure is not considered as a perquisite in the hands of the employee are:

  • Employee should have spent the amount on medical treatment.
  • The amount should have been spent on his own or his *family member treatment
  • Expenditure should be reimbursed by the employer
  • Amount reimbursed by employer does not exceed Rs 15000 in the financial year.

*Meaning of Family for the purpose of Medical Reimbursement is:

  • Spouse and the children of the employee. Children may be dependent or independent, married or unmarried
  • Parents, sister, brother of the employee who are wholly or mainly dependent on employee.

Tax Benefit to Employee on Medical Reimbursement of up to Rs.15,000

  • If the above mentioned conditions are satisfied then tax benefit of the expenditure incurred could be taken up to Rs.15,000.
  • Exemption is only available on the reimbursement of actual expenses incurred on medical bills i.e. employer can only reimburse what is actually spent.
  • The bills should be necessarily be furnished by the employee to employer at the end of financial year. However, bills need not to be of Govt hospitals or any specified hospital, it can be of Private hospital/ clinic etc. If the reimbursement by employer is more than Rs.15,000 then that would be added to the total income of the employee under the head ‘salaries’ at the time of filing ITR i.e. tax would be levied as per the income tax slabs of the individual.
  • Example: X spend Rs.14000 on medical treatment of his spouse during the financial year. He submitted the original bills to employer. His total income will come down to Rs.14,000. In case he spend Rs.20,000, then Rs.5,000 will be added to taxable income and taxed accordingly.
  • In case, in place of spouse the medical treatment of Rs.12000 is of his independent brother then Rs.12000 will be added to taxable income as independent brother is not included in the meaning of family.

Tax levy on Medical Reimbursement and Medical allowance

Salaried individual can get confused between Medical allowance and Medical reimbursement. Medical allowance is pre-specified amount which is given by employer to employee irrespective of the expenditure incurred. The employee may or may not furnish the bills of medical expenditure. Medical reimbursement is given by employer after the actual expenditure incurred by the employee. Employee has to furnish the original bills of the medical expenditure.

There is no tax levy on medical reimbursement up to Rs.15,000 but the medical allowance would be added in the total income under the head ‘salary’ and is fully taxable.

Income Tax on Medical Facility in INDIA

Besides the medical reimbursement, the following are also treated as tax-free perquisites under section 17(2) of income tax act and no tax is levied on these:

  • Medical reimbursement provided by employer to employee for medical treatment of self or his family member’s medical treatment in respect of diseases as prescribed in Rule 3A of Income tax rules prescribed by Chief Commissioner of Income tax, but the employee has to attach a certificate of the hospital specifying the disease for which medical treatment was required along with ITR.
  • Any amount of the insurance premium paid by the employer for insurance of the employee under a scheme approved by General insurance Company.
  • Any reimbursement by the employer to employee for insurance premium paid of the insurance approved by General Insurance Corporation of India.

Income Tax on Payment for Medical Treatment Outside India

The expenditure incurred by employer on treatment of employee or his family member is tax free in following cases:

  • Expenses on medical treatment of the employee or his family outside India but up to the extent permitted by RBI.
  • Expenses on stay outside India of the employee or his family member for medical treatment with one attendant who look after the patient to the extent permitted by RBI.
  • Travel expenses of the patient and one attendant who look after the patient in connection with medical treatment. It shall be tax free in case of those employees whose gross total income (before including therein such travel expenditure as perquisite) does not exceed Rs.2,00,000 i.e. if before including the perquisite on account of travel expenditure gross total income exceeds Rs.2,00,000 then the expenses on travel of patient as well as attendant shall be included in total income as perquisite and taxed accordingly.

Points to be noted

  • The employee can claim medical expenditure only of relevant financial year not of previous year
  • The mediclaim premium is not considered as medical expenditure. It is covered under section 80D separately.
  • There is no upper limit in case of reimbursement of medical expenditure incurred in hospitals, clinics maintained by employer or Govt or local authority or hospitals approved by Central govt health schemes.

About the Author

arpit goyalArpit Goyal is pursuing CA and B.com & also working as an article assistant in Gurgaon. He has an immense interest in Taxation. He loves to use technology to spread knowledge about taxation & accounts.

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3 Comments

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  1. Thanks for the information.

  2. RAMESH CHANDRA SHARMA

    AMOLE KNOWLEDGE GIVEN
    THAK U SIR.
    I WOULD LIKE TO KNOW ABOUT TREATMENT OF RETIREMENT BEFITS WHILE FILING RETURN SUCH AS PF, GRATUITY LEAVE ENCASHMENT ETC. KINDLY ADVISE.

  3. Very nice and deep knowledge. Your presentation are very much useful and understandable to all person.

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