Is Medical Reimbursement Tax Exempted?

• Written by Yashita Sinha

  Reviewed by Munmi Sharma

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Whether provided by a health insurance company or through your employer, medical reimbursement significantly offers mental satisfaction that your healthcare expenses will be reimbursed. But did you know it also comes with the added advantage of tax exemptions under the Income Tax Act?

In this blog, we’ll thoroughly guide you through how medical reimbursement works, its benefits, taxation and the process of claiming tax deductions from your employer or insurer. So, without further ado let’s get started.

What is Medical Reimbursement?

Also known as reimbursement of medical expenses, medical reimbursement is a process in which individuals are compensated for the healthcare expenses they

upfront pay for.

This reimbursement can be employer-provided or insurance claim. Generally, the latter is non-taxable as it is not considered as an income. However, employer-provided reimbursement is taxable under certain circumstances which we’ll uncover in the upcoming sections.

Benefits of Medical Reimbursement

In a country where healthcare costs are constantly on a surge, medical reimbursement acts as a much-needed claim option, allowing you to get access to quality healthcare without worrying about the costs. Here’s the breakdown of the benefits it offers:

Peace of Mind

Unexpected medical expenses come with unavoidable stress and financial burdens. Here, medical reimbursement offers peace of mind by providing compensation for your healthcare expenses. So after bearing the cost of treatment, you can easily get it reimbursed.

Financial Security

Along with mental satisfaction, medical reimbursement also prevents the depletion of your savings in the payment of hospital bills. It acts as a safety net, helping you manage medical expenses without using your hard-earned savings.

Tax Benefits

Another significant advantage of medical reimbursement is that the reimbursed amount gets exempted from taxation under certain conditions.

How is Medical Reimbursement Taxed?

According to the Income Tax Act of 1961, you’re eligible for a partial exemption from taxation provided that your reimbursement amount is up to INR 15,000. However, if the amount exceeds this value, the additional reimbursement amount is taxable.

Let’s take an example to understand this. Suppose the hospital bill of Mr Gupta is INR 20,000 which was reimbursed by his insurer. Now as per Income Tax Act guidelines, the additional 5,000 which got added to his salary income will be taxable.

On the other hand, medical reimbursements provided by insurance companies are non-taxable. Since reimbursement claims are considered compensation for the expenses incurred during medical treatment, they don’t qualify as taxable income.

Note: From the financial year 2018–2019, the medical expenses tax deduction benefit is no longer available.

Eligibility Criteria for Claiming Tax Deduction on Medical Reimbursement

To gain a better understanding, let’s get a comparative perspective on the eligibility criteria for claiming tax deductions on employer-provided and insurance reimbursement.

For Employer-Provided Reimbursement

• You must have spent the amount on medical treatment.
• The upfront expenses should have been for the treatment of your family members.
• Your employer must have provided reimbursement for the amount you spent on medical treatment.
• The reimbursed amount must not exceed INR 15,000. If it does, the additional amount will be taxable.

For Insurance Reimbursement

• Ensure that your health insurance policy provides coverage for medical expenses.
• Your policy should be active.
• You must provide all the relevant documents to your insurer for the claim process.
• You must present the claims according to the terms listed in the policy.

Documents Required to File a Reimbursement Claim Under Health Insurance

You need to submit the following documents while filing for a reimbursement claim under your health insurance;

• Claim form
• Copy of health card/ insurance policy
• Copy of KYC documents
• Copy of doctor consultation papers
• Hospital discharge summary
• Original hospital bills
• Original bill payment receipts and invoices
• NEFT details

Note: Documents required for employer-provided documents include original hospital bills and claim forms. You might need to submit additional documents per your organisation’s reimbursement policies.

How to Claim Medical Reimbursement?

Here’s a breakdown of the steps involved in obtaining medical reimbursement from your employer and insurance company:

Things to Consider about Medical Reimbursement

Here are the significant factors to consider about medical reimbursement from the insurance company’s and employer’s perspective. Let’s start with the former first:

Health Insurance Company

• You cannot claim medical reimbursement for the previous financial year.
• There is no maximum limit in reimbursements for medical expenditures maintained by the employer, government authorities, or hospitals approved under central government health schemes.
• The premium paid towards the mediclaim policy is not regarded as a medical expenditure, but Section 80D benefit is available. It will not be considered for income tax exemption under medical reimbursement but can be considered for tax deduction separately under Section 80D of the Income Tax Act.
• Submit original documents to ensure a smooth claim procedure.
• Know the inclusions and exclusions of your policy including limits

Employer

• Consult your HR team to understand your organisation's reimbursement policies and the specific documents required.
• Ensure that you submit reimbursement claims before deadlines.
• Avoid submitting incomplete or generic bills. Employers require valid hospital bills to initiate the reimbursement process.

Also Read: These Special Tax Benefits for Super Senior Citizens

Wrapping it Up!

Whether provided by your employer or insurance company, medical reimbursement offers significant financial relief during healthcare expenses. You get tax exemptions on employer-provided medical reimbursement under certain circumstances whereas an insurance company’s reimbursement is generally tax-free, ensuring you don’t face any added financial pressure during medical emergencies.

So, along with offering peace of mind by keeping you protected from hefty medical bills, purchasing health insurance also makes you eligible for tax deductions under Section 80 D of the Income Tax Act, making it a smart investment.

Disclaimer: All plan features, benefits, coverage, and claims underwriting are subject to policy terms and conditions. Kindly refer to the brochure, sales prospectus, and policy documents carefully.