Medical Allowance Vs. Medical Reimbursement

Difference between Medical Allowance and Medical Reimbursement

Both Medical Reimbursement and Medical Allowance looks same if one does go only by name, but they are two different things having different tax treatment under the Income Tax Act, 1961. The later is fully taxable with the first one is exempt upto a certain limit. Let’s understand in more details.

Medical Allowance

As a general principle under the Income Tax Act, any Allowance received by an employee is fully taxable unless specifically exempted for example House Rent Allowance is exempt only 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. In case employee receives a fixed monthly allowance for the discharge of medical expenses than it shall be treated as a taxable perquisite added to the salary. Hence, an employee should avoid the receipt of an allowance for medical expenses.

Medical Reimbursement

Reimbursement of medical expenses actually incurred by an employee for his medical treatment or the treatment of any member of his family upto Rs. 15,000 per annum is exempted and shall not be treated as a taxable perquisite as per Clause (v) of the Proviso to Section 17 (2) of the Income Tax Act. Member of Family includes Spouse or Children of the Individual or any of dependent relatives being Parents, Brother or Sister. The condition of dependency does not applicable for Spouse or Children but Parents, Brother or Sister should be dependent on the individual. Thus Medical Expenses Reimbursement of expense actually incurred by an employee upto Rs. 15,000 per year is completely tax free.

In case of Medical Reimbursement, employee is required to submit the cash memos, bills to employer to claim the reimbursement. After verification of bills employer reimburses employee, subject to pre-decided limits. Medical Reimbursement up to Rs. 15000 p.a. is exempt from Income Tax.

Please note that, it is employer’s responsibility to pay Medical Reimbursement only against authentic bills, cash memos to claim exemption from Income Tax. This reimbursement is open to audit and scrutiny by both Tax Auditors and IT Dept.

Typically if the employee fails to submit valid medical bills or cash memos for the entire entitlement amount of Rs. 15,000 then the balance amount (Rs.15000 less submitted bills or cash memos amount) paid by the company shall become taxable amount. For example an employee is entitled to Medical Expenses Reimbursement of Rs. 15,000 every year, but is able submit medical bills only for Rs. 10,000 for the year. In this case the company would pay Rs. 10,000 as Medical Expenses Reimbursement, which is not taxable. The balance amount of Rs. 5,000 would be paid in the last month and would be taxable.

Please note that Medical Expense Reimbursement of Rs. 15,000 is over and above the deduction under under Section 80D of the Income Tax Act available for Medical / Health Insurance Premium – Mediclaim Premium.

So Instead of fixed Medical Allowance, always opt for reimbursement of Medical Expenses.

  • Madhu

    I have spent more than Rs 2,00,000 for kidney transplantation to my spouse but I could get only Rs 2, 00, 000 through reimbursement. Do I have to pay tax on this amount/

  • hima

    Hi Sanyam

    For Fin Year2012-2013 i have the medical bills but due to hectic schedule i could not submit those to employer duringthe year end, can i claim the medical reimbursements during Returns filing now – Exm.under proviso to sec.17(2), if so , how should this be done in Online efiling(require the column no)

    • thesanyamjain

      You cannot claim this reimbursement as deduction in your IT return as the deduction available under Income Tax Act, 1961 is for the medical insurance premium paid under section 80D and not for reimbursements received from employer.

      Section 80D allows deduction upto Rs.15,000 for the insurance premium paid by assessee in any mode other than cash on self, spouse, children and dependent parents.

      You must not accumulate the medical expenses and claim them as deduction in your IT return as it is not allowed and the maximum limit under section 80D is for Rs.15,000 only and that too for medical insurance premium.

      If you are having a medical insurance then all the medical expenses get reimbursed by the insurance company and that can be lakhs of rupees also which you will not be claiming as deduction in your IT return.

  • Animesh Jain

    I have a doubt
    1) Suppose a person leaves a company after 4 months from the start of financial year. But in this duration, one has got the medical reimbursement of say 15000. So now when the person leaves the company , will the company deduct 10,000 from the last salary ( because for 4 months, the medical reimbursement was 5000) or the company will not deduct anything from the last salary.

    • thesanyamjain

      Its depend on the policy of the company because reimbursement is an admissible expense under section 37 for the company. If they give full Rs.15,000 to the employee than they can claim the full amount but if they deduct any amount at the time of leaving, then the same shall be disallowed.

  • Rajesh

    Hi

    My mom is suffering from diabeties and all the bills i have is on the name of my mother. But as she is dependent on me and I make payment of those bills, can is use those bills for Medical reimbursement?. On my offer letter its mentioned Medical Allowance of Rs, 1250 / month i.e. rs 15000 /annum

    • thesanyamjain

      No you can’t claim the same as medical reimbursement because you are receiving medical allowance. You can claim under section 80D preventive health checkups…

  • Merwyn

    hi

    I do not get any medical allowance in my salary… but can i claim medical reimbursement upto 15000/- ???

    • thesanyamjain

      Yes you can take tax free medical reimbursement upto Rs.15,000.

  • vijayakar

    Sir i have spent for my medical exps Rs.43000/-
    bills are provided to bank
    i applied for Reimbursement of RS.21000/- in dec 2012 by our employer ( i.e from public sector bank )
    remaining amount will be paid by our staff welfare committee in this fy

    my doubts are wil i get tax exemption of Rs.15000/- in this A Y &
    remaining amt in next A Y ?
    if yes then which section i can claim for exmpetion

    • thesanyamjain

      Under clause (b) of section 17(2) permits exemption of expenses incurred in medical treatment by employee upto Rs.15,000 reimbursable from Employer in the year of receipt of payment.

      So in your case Rs. 15,000 will be exempt in the assessment year 2013-14 (Rs.6,000 will be added to your salary) and Rs. 15,000 in 2014-15 (Rs.7,000 will be added to you salary).

  • Amita Gupta

    Please let me knw, if i get Rs.9000 as an medical allowance from company on yearly basis…….if i submit the bills of Rs.15000/- then how much get deduction agnst medical bills u/s 17(2)….

    • thesanyamjain

      Since you receive medical allownace unfortunately the whole sum of Rs.9,000 irrespective of what you spent or bills produced.

      Exemption of Rs.15,000 is available only if the reimbursement is done.

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