Employers offer many health and related benefits to their employees to cover expenses incurred on them, their parents, children or dependent brothers or sisters. These benefits include medical allowance and reimbursement, among others.
Subsequently, individuals can also avail medical allowance exemption under the Income Tax Act. With these health benefits, salaried individuals can easily manage medical expenditures incurred in any financial year.
Read on to know more about medical allowances in salary!
A medical allowance is a fixed allowance that a company pays its employees, regardless of whether they have submitted the bills to claim these expenses or not. Employers offer these allowances every month. Employers provide this benefit to promote staff health and support medical expenses that workers incur in a financial year.
Additionally, employers provide other medical benefits, namely medical reimbursement. It is crucial to understand how this particular benefit differs from medical allowance, which is further discussed in detail below.
Often salaried individuals use the terms of medical allowances and medical reimbursement alternatively. However, the primary difference lies in the tax treatments as per the Income Tax Act 1961.
As stated earlier, a medical allowance is a fixed payment that employers provide to employees to cover their medical expenses. On the other hand, medical reimbursement is a tax-free component where employers reimburse employees' portion of medical costs.
Under section 80D, you can claim medical reimbursement up to ₹50,000 p.a. for senior citizens. Here, you have to submit the bills on time to get medical reimbursement.
Now that individuals know what medical allowance is and how it is different from medical reimbursement, let’s move on to the categories of medical allowance.
Depending on the nature and company policy, medical allowances fall under 3 categories. These are -
As the name suggests, fixed medical allowance refers to a fixed amount that employers pay to employees. This amount is a part of the employee’s salary and is taxable irrespective of whether it is spent on medical costs or not.
For instance, if an individual's salary consists of a medical allowance worth ₹5000, they have to pay tax if his/her total income falls under taxable income for that financial year.
Usually, employers offer a mediclaim policy for the employee only. Therefore, employers can claim this amount in their corporate return.
Here, employees have to submit medical bills, including the cost of medicines. Then, employers reimburse claims after verifying those bills on an actual basis.
For instance, if an individual submits bills of medical expenses worth ₹40,000, the employer reimburses ₹40,000 in full as per the company policy.
As per the Income Tax Act 1961, the calculation of medical allowance expenditure is not present and entirely depends on the employee. Therefore, to receive a medical allowance exemption, individuals have to fulfil certain eligibility criteria. These are as follows -
Wondering what maximum amount is that one can claim after one fulfils the above-mentioned eligibility criteria? Read along!
With the sum paid by employers towards the treatment cost of an employee and his/her family (spouse, children, siblings, dependent parents), that employee can claim income tax deductions.
| Case 1 | ||
| Bills Submitted | Exempt Amount | |
| ₹14000 | ₹14000 under section 10 of the Income Tax Act | |
| Case 2 | ||
| Bills Submitted | Exempt Amount | |
| ₹30000 | ₹15000 (only ₹15000 can be claimed for tax exemption) | |
To claim medical allowance or medical reimbursement, one has to submit the original bills of medical expenses to employers. Then, after checking those bills, the employer will reimburse the amount.
Hopefully, the above discourse has helped you understand how medical allowance exemption is different from reimbursement. With these details and other information, individuals can claim tax benefits on their own and their families' medical expenses.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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