Tax Benefit to Employee on Medical Reimbursement

Organisations usually offer a plethora of different benefits in addition to salary components to their employees. Some of these benefits are entirely tax-free, whereas others are fully taxable. There is also another category: partially tax-exempt. These benefits are tax-exempt up to a certain limit. If the benefits exceed the specified limit, they will become taxable on your hands.In this article, we are going to explore one of the many benefits that employers offer, which is reimbursement of medical expenses. If you are wondering whether medical reimbursement is taxable or not, here is something that can help give you some much-needed clarity.

Reimbursement of medical expenses is one of the many benefits that employers provide. Here, employees can get back the expenses they incur for medical treatment from their employers by filing a claim. Let us look at a hypothetical example to understand how this works.Assume you are an employee of an organisation. As per your terms of employment, you are eligible for a medical expense reimbursement benefit. During the current financial year, you undergo medical treatment for a particular illness. The expenses in connection with the treatment amounted to Rs. 25,000, which you paid out of pocket.Since you have the medical expenses reimbursement benefit, you decide to file a claim, along with the necessary supporting documents, with your employer and get the amount reimbursed. After verifying your claim, your employer will repay the medical expenses of Rs. 25,000 you incurred.

According to the provisions of the Income Tax Act of 1961 , the reimbursement of medical expenses is partially tax-exempt up to Rs. 15,000. If the amount is more than Rs. 15,000, the excess medical reimbursement is taxable under the heading ‘Income from Salaries’.Let us take up the previous example to understand how reimbursement of medical expenses is treated under the Income Tax Act.In the example above, your medical expenses amounted to Rs. 25,000, which were reimbursed to you by your employer. As per the Income Tax Act , reimbursements of up to Rs. 15,000 are tax-exempt.This essentially means that the excess amount of Rs. 10,000 (Rs. 25,000 - Rs. 15,000) you received from your employer would be taxable. The excess amount will be added to your salary income and taxed at the Link income tax Link slab rate applicable to you. Note: With effect from the financial year 2018–2019 onwards, the medical expenses tax deduction benefit is no longer available. Instead, individuals with income from salaries are now offered a standard deduction of Rs. 50,000 by the Income Tax Act of 1961. Also Read: A Guide to Tax Saving Under Section 10 (10D) of Income Tax

Now that we have addressed tax on medical reimbursement as per the provisions of the Income Tax Act of 1961, let us look at the eligibility criteria you need to satisfy to claim exemption.

• You must have paid for medical treatment for yourself, your spouse, your dependent children, your dependent parents, or your dependent siblings.
• Your employer must have reimbursed the amount you paid for medical treatment.
• The amount that was reimbursed must be more than Rs. 15,000. If the amount of reimbursement is higher, the tax exemption will be limited to Rs. 15,000.

Things to Keep in Mind When Claiming Reimbursement of Medical Expenses

There are certain factors you must keep in mind when claiming medical reimbursement under the Income Tax Act of 1961. Here is a quick overview of some of the key conditions:

• You must produce valid bills and invoices as proof when filing a claim with your employer.
• The medical bills can be from private hospitals or private clinics.
• The medical bills can be for prescription drugs, checkups, and doctor consultations, among others.
• You can undergo medical treatment under any branch of medicine, including allopathy, homoeopathy, and ayurveda, among others.
• The medical reimbursement is not taxable if the medical treatment is done in a government hospital, a hospital under the union government’s health schemes, or a hospital or clinic maintained by the employer.

Also Read: List of Tax-Free Income Sources in India

The procedure to claim reimbursement of medical expenses may vary slightly depending on your employer. Here is a generic overview of the process you need to follow to get medical expenses reimbursed.

• Step 1: Collect all valid bills and invoices in connection with the medical treatment undergone during the current financial year.
• Step 2: File a claim with your employer for medical expense reimbursement. You may be asked to fill out a reimbursement form.
• Step 3: Attach all the bills and invoices along with the claim form and submit it to your employer.
• Step 4: After verification and scrutiny, your employer will reimburse the amount you spent on medical treatment.
• Step 5: If the reimbursement amount is Rs. 15,000 or less, the entire amount will be tax-exempt. If the amount is more than Rs. 15,000, the excess must be added to the head ‘Income from Salaries’ and you must pay tax on medical reimbursement at the income tax slab rate applicable to you.

Contrary to popular opinion, medical reimbursement and medical allowance are two completely different benefits that employers offer to their employees. Here is the difference between these two.A medical allowance is a part of the monthly salary that employers pay their employees. A fixed amount of money is paid each month, regardless of whether the employee uses it to cover medical treatment expenses or purchase medicines. Employees are not required to submit bills or invoices to receive medical allowance. The Income Tax Act does not provide any medical allowance exemption, meaning that the entire amount is taxed in the hands of the employee as ‘Income from Salaries’.Reimbursement of medical expenses, on the other hand, is an additional benefit employers offer their employees. Medical reimbursement is provided over and above the regular salary component. However, to avail of this benefit, employees must submit valid medical bills and invoices as proof along with a claim form. Furthermore, the medical expense reimbursement is partially tax-exempt up to Rs. 15,000. Also Read: What Is The Special Allowance Benefit And What Is Its Exemption Limit?

With this, you must now be aware of whether medical reimbursement is taxable or not as per the Income Tax Act. That said, it is important to keep in mind that this particular tax exemption is no longer available. The Union Budget 2018 removed the tax exemption on medical reimbursement and transport allowance from the financial year 2018-2019 onwards. Instead, salaried individuals now get a standard deduction of Rs. 50,000 to help lower tax liability .Ready to make the most of your money? Start your tax planning journey now!