Understanding Medical Allowance in Salary Breakup: Compliance, Taxation, and Employee Benefits

Hi,

Can somebody assist me with information regarding Medical allowance in compliance with labor law? What is the ceiling salary in terms of gross, CTC, or net to add this component in the salary breakup? Secondly, if we have this component in the salary, is it mandatory to collect bills or does it depend on the tax liability?

Your assistance in this regard shall be helpful. Thank you.

Regards,
Unknown

Labour Law is silent about the payment of medical allowance. It is purely a matter of the respective company's policy whether to give a medical allowance or not. If such an allowance is given, the company can insist upon the production of bills in the original. However, if such an allowance is part of CTC, there is no meaning in demanding bills from the employees because such payment is fixed as forming part of the monthly salary.

For Income Tax purposes, invariably, payment should be supported by bills, and the maximum amount allowed as a deduction is Rs 15,000 per annum.

Regards,

Madhu.T.K

Hi,

I appreciate your assistance and acknowledgment in this regard. In one of your statements, I would like to seek further clarification:

"However, if such allowance is part of CTC, there is no meaning in demanding bills from the employees because such payment is pre-fixed as forming part of the monthly salary."

When we consider the above, I believe the component becomes taxable unless the bills are produced (taking into account that the salary falls under the tax bracket). If that is the case, there is no need to include this element in the salary structure. Could you please clarify this point?

Thank you for your support.

Regards,
Unknown

CTC is prefixed and includes all costs to the company besides salary. An employee is accepting the offer on the basis of all the elements like basic salary, HRA, Conveyance, medical allowance, mobile phone reimbursements, the employer's contribution to EPF, the cost the employer may have to incur after five years by way of gratuity, and whatever else the employer wants to add to make the total sum OFFERED attractive.

Certainly, there is a basic difference between an allowance and reimbursement of a certain expense met. An allowance is pre-fixed and will not vary, whereas reimbursement is not prefixed and shall vary. For example, if Rs 1500 is fixed as Medical Allowance, that is payable without producing any proof that the employee has spent the amount. But if it is medical reimbursement subject to a maximum of a fixed sum or limited to the basic pay per annum, the employee is expected to produce bills in support to claim the amount.

In a CTC agreement, the medical allowance is usually shown as part of CTC. That means it is fixed and decided in advance before hiring an employee, and on the same footing, the employee has accepted the offer of employment on the faith that he will get it as part of his earnings. As such, there is no meaning in demanding bills to release this amount. Of course, if he produces bills, he can get an exemption u/s 80C of Income Tax, subject to Rs 15000. That is a different treatment because if the employee says that he is ready to pay tax for the amount, can the employer refuse? No.

Madhu.T.K