In recent years, the incidence of health problems and their treatment costs have increased by leaps and bounds all over the world. The main culprits for this include changing food habits and poor lifestyle choices. According to an analysis published by the world’s leading medical journal ‘Lancet’, Indians pay around 78% of their medical expenses out of their own pocket. The paper points out that the majority of this treatment expenditure (approximately 74%) incurred in India is for outpatient treatment whereas only 26% expenditure relates to in-patient procedures that require hospitalization of 24 hours or more. It also states that 72% of the total out-of pocket expenses relate to purchase of medications both before and after medical procedures. In order to provide some relief to the society at large and individuals in particular from these escalating medical costs, some provisions have been made in the Income Tax Act, 1961. These provisions help in decreasing the tax burden by providing various deductions and exemptions for payment of medical expenditures, insurance premiums, etc. These deductions and exemptions have been detailed as below:
Medical allowance is a fixed amount paid by some employers to their employees on a monthly basis. If medical allowance is received by the employee, such reimbursement can’t be claimed as a deduction from taxable income. Medical allowance shall be fully taxable under the head ‘Income from Other Sources’ in such cases.
Reimbursement of Medical bills by Employer
There are a number of deductions and exemptions allowed under the Income Tax Act. One of these exemptions relates to medical bills and related expenses incurred during the Financial Year by an individual. These expenses include those made for treatment of self as well as family members/dependants. Reimbursement of medical expenses to salaried employees by their employers does not come under the tax ambit. No tax shall be levied on submission of medical bills up to Rs 15,000 to the employer in a financial year. The following conditions need to be fulfilled in order to claim this exemption:
- Medical expenses incurred on self, spouse, children or completely dependent parents & siblings can only be claimed for exemption.
- These medical bills can relate to medicines bought from medical shops or pharmacies or treatment of an ailment done at any clinic, private hospital or public hospital.
- These medical bills need to be submitted only with the employer. No reimbursement can be claimed at the time of filing the income tax return.
Tax exemption that can be claimed in lieu of medical bills is capped at Rs 15,000 per year.
Any medical expenses incurred over and above Rs 15,000 shall be subject to tax, irrespective of the fact that the employer may have reimbursed the employee for the excessive amount. In case these expenses are less than Rs 15,000, then, only the actual expenses can be claimed for exemption. For example: if the medical bills of Rs 12,000 have been submitted for a financial year, you can’t claim exemption for Rs 15,000. The maximum allowable exemption for this scheme is Rs 12,000 as per actuals.
In absence of any medical bills to support your reimbursement claims, the entire amount of Rs 15,000 shall be taxable.
A salaried employee either receives a fixed medical allowance or is allowed a reimbursement by the employer.
A deduction of Rs 15,000 per annum can be claimed for medical insurance done for self, spouse and children. You need to get a medical insurance done from any insurance company and pay an annual premium to claim the premium amount paid as tax exemption. An additional exemption of Rs 15,000 can be claimed per year against the premium paid for elderly parents. In case of an assessee being a senior citizen, tax exemption allowed on medical insurance is up to Rs 20,000 per year.
These days even medical consultations, simple small surgeries or minor medical treatments can burn a hole in your pocket. In order to reduce your tax burden by allowing deduction of medical expenses to a certain limit, the Income Tax Act has made some key provisions in this context.
Deduction for medical expenses can be claimed u/s 80DDB for medical expenditure incurred in case of self, spouse, children, parents or dependent siblings. This deduction can be claimed only by a resident individual or a member of the HUF. Only an assessee who is an Indian resident for the given financial year (for which deduction is being claimed) is eligible to claim this deduction.
Actual expenses incurred on medical treatments can be claimed as deduction subject to an upper limit of Rs 40,000. This deduction limit varies in case of one age group to another. This cap of Rs 40,000 applies to individuals aged less than 60 years. Whereas for senior citizens of up to 80 years, actual medical expenses or Rs 60,000 shall be allowed as deduction. For super senior citizens i.e. aged more over 80 years, this limit has been fixed at Rs 80,000.
How to claim the benefit?
The only requirement for claiming deduction under section 80DDA is to present the certificate of disease. This can be obtained from the specialist medical officer, whether practicing at a private or a public hospital, from whom the treatment is sought. The specialist should possess a degree in which he/she has specialized. The degree must be authenticated by the Medical Council of India.
Deduction for medical expenses can’t be claimed if reimbursement for the same is done by the insurance company. But if the reimbursement done by the insurance company is less than the actual expenditure, tax deduction can be claimed for the balance amount (maximum up to the deduction limit).
Deduction can be claimed for treatment of a wide range of diseases that includes: neurological disorders like dementia, hemiballismus, ataxia, Parkinson’s disease, motor neuron disease, chorea, dystonia, musculorum deformans and aphasia. Treatment of chronic conditions like malignant cancers, renal failure and hematological disorders such as hemophilia, Thalassemia and full blown AIDS (Acquired Immunodeficiency Syndrome) can also be claimed for deduction under Section 80DDB.
Tax Deduction u/s 80 DD for Payment of Health Insurance Premium
A deduction of Rs 15,000 can be made from your total annual income to arrive at the taxable income in lieu of the health insurance premium paid during a year. For senior citizens, this limit has been raised to Rs 20,000. Amount paid as premium for Mediclaim policies purchased for self, spouse, parents and dependent children alone can be claimed for income tax deduction under section 80DD.
In case of HUFs, the amount paid for purchasing health insurance policy for any HUF member shall qualify for tax deduction. But this deduction shall be limited to a maximum of Rs 40,000 per year. If the health insurance premium for a year is less than the maximum limit, expenses up to Rs 5,000 that are incurred on preventive health checkups can also be claimed for tax deduction (subject to the total deduction remaining the same).
Tax Deduction u/s 80DD for Expenses Incurred on Treatment of a Disabled Dependant
According to Section 80DD, expenditure incurred for treatment of a disabled dependent or for payment made for an approved insurance scheme meant for maintenance of a disabled dependent shall be eligible for tax-deduction.
If the dependent is suffering from severe disability (i.e. disability of 80% or more) the limit for tax deduction has been fixed at Rs 100,000 per financial year. This limit shall be restricted to Rs. 50,000 in other cases i.e. lower degree of disability. A person with disability shall be the one who has suffered ‘not less than 40% disability’ as per the certification of a medical authority.
The disabilities eligible under this section includes hearing impairment, mental illness, autism, cerebral palsy, multiple disabilities, blindness (or low vision), mental retardation, leprosy, etc. In case of individual tax payees, dependents who are covered include spouse, children, siblings and/or parents. In case of HUF, any member of HUF can be treated as a dependent. A certificate of treatment from doctors of government hospitals is required to be submitted in a prescribed format to claim deduction as a disabled dependant under this section.
Payment to an insurance scheme is eligible for tax deduction only if the disabled dependent gets the amount (whether in the form of annuity or lump sum) after the tax payer’s death. A trust, dependent, or any other person can be nominated for receiving the payment on behalf of dependent in such cases.
Deduction u/s 80U for Persons with Disabilities
A disabled person suffering with 40% or more disability can claim deductions capped at Rs. 50,000 annually under this section. In case of severe disability, the deduction limit shall be increased to Rs 100,000. A certificate from government approved medical authority is required to be furnished for claiming deduction under this section. Reassessment of disability will be done on expiry of the certificate. The disabilities eligible for deduction are same as under section 80DD of the Income Tax Act of 1961.