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tax free benefits for medical expenses

Tax Free Benefits for Medical Expenses

Last Update Date : August 13, 2018

Every individual wants to maximize on their tax saving. So, in respect to that, the Income Tax Department(ITD) allows every individual to claim deductions, exemptions and provides tax-free benefits under the many rules and sections of Income Tax Act, 1961. One of them is to cover the medical expenses incurred by the employees, which will be outlined in this blog.

tax free benefits for medical expenses

Medical Reimbursement

Medical reimbursement is an exemption under Income Tax Act, 1961, which allows medical expenses incurred by the employee or his family members to be claimed as tax exempt. The ITD allows an exemption for medical reimbursement of up to Rs 15000/- p.a. for the expenses incurred on medical treatment of the taxpayer or his family members. The medical allowance provided by the employer is not as the same as the medical reimbursement claimed by the employees. There is a difference between them.

Medical Allowance vs Medical Reimbursement

Medical allowance and medical reimbursement are two different things.

  • The employers allow the employees to submit the medical bills incurred by them and these bills will be considered as Tax exempt up to Rs. 15,000 p.a. This is medical called reimbursement.
  • At the same time, few employers provide medical allowances or a fixed amount of benefit on monthly basis to the employee. This may be a part of the salary. This is considered as medical allowance. Medical allowance is fully taxable. It will be exempt only if you submit the related bills and receipts to your employer.

Eligibility to Claim Medical Reimbursement

Though the income tax department allows deductions and exemptions for the employees, there must be a few conditions that have to be fulfilled to claim them. Let’s have a check on the conditions.

  • The employees must have all the bills and receipts of the medical expenses.
  • Medical reimbursement is claimed only if the medical expenses are incurred by the employee itself or his/family members, which includes, spouse, children, parents, sister or brother.
  • These bills can include medical fees to the doctors, expenses made to the purchase of medicines.
  • Treatment can be taken from either public or private hospitals/institutions.
  • If the employee doesn’t have the bills or receipts with him, then he/she cannot seek reimbursement
  • If the amount of employee’s medical bills exceeds the limit of Rs. 15000/he/she can claim only Rs. 15000/- and the remaining, if the employer provides reimbursement, it will be taxable, as additional income.

Procedure to Claim Medical Reimbursement

To claim medical reimbursement, the employee must submit all the medical bills and receipts to the company/employer.  According to the Budget of the F.Y. 2018-19, there have been a few changes and proposals made on Standard Deductions for the benefit of employees. A standard deduction of Rs.40000/- can be deducted from the annual income earned by the employee.

Pension received for past services is taxes as salary under the income tax act so the standard deduction of Rs. 40,000 will also be available to the pension received from past employer.

Standard Deduction

It is a fixed amount of deduction. Standard deduction includes conveyance allowance (Transport allowance) and medical reimbursements to an amount of Rs.40000/- p.a. which can be reduced for the salaried tax-payers from the total income.

This deduction is the replacement of conveyance allowance of Rs.1600 p.m. and the medical reimbursement of Rs.15000 p.a. which is generally deducted from the gross annual salary of an employee. Earlier an employee would get a deduction of conveyance allowance of Rs.1600 p.m. which is Rs. 19,200/- p.a. and a medical reimbursement of Rs.15000/- p.a. which leads to a total amount of Rs. 34,200/- But the new standard deduction gives a benefit of Rs.40000/-, which is advantageous to the employee, as there is a difference of Rs. 5800/- p.a.

An example to understand the new deductions:

Following is the Income Statement of Mr. Manas.

Particulars F.Y. 2017-18 (in Rs.) F.Y. 2018-19 (in Rs.)
Gross Income 12,00,000 12,00,000
Medical Re-imbursement (15,000) N/A
Conveyance allowance (travel allowance) (19,200) N/A
Standard Deduction N/A (40,000)
Net Income

(Salary)

11,65,800 11,60,000
Tax payable 1,62,240 1,60500,
Education cess @3%/4% 4,867.2

(consider @ 3%)

6,420

(consider @ 4%)

Total tax payable 1,67,107.2 1,66,920
Difference (187.2)

Difference (187.2)

Mr. Manas has saved Rs. 187.2/- after the application of standard deduction.

Note: Pension received for past services is taxes as salary under the income tax act so the standard deduction of Rs. 40,000 will also be available to the pension received from past employer.

To know how to utilize the tax saving options available to you and for better tax saving and planning options, consult your personal tax expert at H&R Block India.

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