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.