A Guide to Tax Exemption on Medical Reimbursement

• Written by Care Health Insurance

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Medical insurance plans help people by minimising their financial burden in various ways. One is by offering good coverage for an affordable premium that must be paid at regular intervals. Another way they help a person save money is by offering tax exemptions under Section 80D of the Income Tax Act 1961. While health insurance covers medical expenditure, offering Section 80D benefits, another tax benefit is available for employees known as the Medical Reimbursement, where employers reimburse a part of employees’ health expenses.

Read on to learn about medical reimbursement exemption Section 17(2) of the Income Tax Act, 1961

The medical reimbursement tax exemption section allows a person to save up to Rs 15,000 on medical reimbursements the employer pays. However, after the announcement of the Union Budget 2018, a Standard Deduction of Rs 40,000 from salary income to employees replaced the feature of tax exemption on medical reimbursement and annual transport allowance of Rs 19,200 in a financial year. After an amendment, the standard deduction has been raised to Rs. 50,000. 

If you are still wondering whether medical reimbursement is taxable or not, below-mentioned is your detailed guide.

What is Medical Reimbyrsement?

A mediclaim policy and life insurance are significant benefits that employers offer their employees. In fact, medical cover is also available for the employee’s family, including spouse and children. 

Medical reimbursement is an option available to employees wherein their employers reimburse their medical treatment costs. Under the Income Tax Act, medical reimbursements have a tax exemption of up to Rs 15,000. 

What are Medical Reimbursement Rules?

The Income Tax Act prescribes some conditions for eligibility, as mentioned below: 

• The employee must have spent the money on medical treatment expenses only. 
• The amount for treatment must have been spent on self or family members, including spouse, children, parents or siblings, and other dependants. 
• The employer must reimburse the specified amount, which does not exceed Rs 15,000 in a financial year.

The exemption is available only on the actual expenses on medical bills that the employee has spent. The bills could be those received from pharmacies or treatment taken in clinics, private or public hospitals. 

Steps to Make a Medical Reimbursement Claim

The employee can make a medical reimbursement claim by following a simple procedure. Firstly, submit the original medical bills to the employer. They must consider the following conditions: 

• The medical bills may belong to private clinics or hospitals
• If the expenses exceed Rs 15,000, they will be included in the employee’s salary and added to their taxable income at the time of ITR filing.  

After that, the employer would reimburse the medical expenses up to the maximum limit of Rs 15,000 without any tax deduction.  

Things to Consider About Medical Reimbursement

• An employee 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.
• Medical reimbursement is different from the medical allowance. The former is a feature wherein the employee’s medical expenses are reimbursed by the employer. In contrast, the latter is a fixed component, i.e., a specified amount offered to employees as part of this monthly salary to help with their medical bills.
• 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.  

Further, some people often mistake medical reimbursement for medical allowance received as part of the monthly salary. An employee gets a tax exemption under section 10 of the Income Tax Act for special allowances. In contrast, no exemption under section 10 is mentioned for medical allowance, and it is taxable as salary income. Moreover, one is not required to show any bills or proof to avail of the medical allowance, whereas original medical bills are mandatory for medical reimbursement. 

Make health coverage a priority for your family by opting for a health insurance plan by Care Health Insurance.

>> Also Read: These Special Tax Benefits for Super Senior Citizens

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.