Understanding Tax Benefits and Reimbursement for Medical Expenses: A Comprehensive Guide

Hi Dev,

My company pays 4% of the basic salary as Medical Allowances. Now, if an employee spends more than this amount on actual medical expenses, can that amount be deducted from his taxable income? He will be able to produce medical bills, and I also understand the limit is Rs. 15,000.

Dev

Hi,

An amount of Rs. 1250 per month or Rs. 15,000 per annum is exempt from income tax, which can be paid as a medical allowance to the employee. The employee needs to submit medical bills once in a quarter, half-yearly, or yearly and claim the reimbursement. Any amount paid or claimed beyond Rs. 15,000 in a financial year would become taxable.

Thanks,
Shrini

Thanks, Vipin and Shrini.

I am still not clear on one thing. I'll try to give you figures. Say, for example, the company pays only 5000 as a medical allowance, whereas the employee spends about 15000 on medical bills from his pocket. So, will he get the rebate on Rs. 5000 only, or can he get it for Rs. 15000 by producing bills?

Dev

If, as per the policy of the company, for a particular Band/Grade, the medical allowance is fixed at Rs. 5000, then the company would provide tax benefits up to Rs. 5000, even if the employee has spent more than this.

Hope this is clear.

Regards,
Shrini

Hi Dev,

As per the IT Act, if you term it as medical 'allowance' (which is paid to the employee irrespective of the actual expense), it is taxable even if the employee produces the bills.

But, if you term it as medical 'reimbursement' (which is paid to the employee depending upon the actual expense), then up to Rs. 15,000 per annum is exempt from tax, on producing the bills.

Hope this helps!

Regards,
Deepthi

Hi,

Can an employee who paid Rs. 15,000/- toward medical expenses in a year claim tax benefits when his salary breakup shows Rs. 72,000/- as medical allowance? If so, how?

Thank you,
Ansari

Hi,

How can a Central Govt pensioner claim a deduction with respect to medical expenses incurred if there are no insurance premiums, no CGHS, no reimbursements involved, and diseases are not covered in the specified diseases list under section 11?

How can you fix % as medical allowance? It shall be Rs. 1250/- per month or less. If it is less, the employee can claim tax exemption to the extent of his allowance limit only.

Pon