Hi All,
Medical reimbursement is prima facie treated as a perquisite taxable under Section 17(2) of the Income Tax Act.
At present, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it exceeds Rs 15,000 during the year, such sum is termed 'salary' as defined in Clause (1) of Section 17 of the Income Tax Act and is liable to income tax in the hands of the employee. There is no change in this position. Since such sum is taxable in the hands of the employee, the same is not liable to FBT.
However, if any sum is paid by the employer for expenditure actually incurred by the employee for medical treatment in an unapproved hospital and it does not exceed Rs 15,000 during the year, such sum does not fall within the meaning of 'salary' as defined in Clause (1) of Section 17 of the Income Tax Act and is not liable to income tax in the hands of the employee. There is no change in this position. Since such sum is not taxable in the hands of the employee, the same is liable to FBT.
Basically, the circular has operated on the premise that FBT is applicable if an employee is not exposed to perquisite taxation.
Hence, up to Rs 15,000 is exempt in the hands of the employee and, therefore, FBT will arise. On the excess portion, as the employee is liable to pay income tax, FBT will not arise.
Since it is taxable in the hands of the employees, the question of the applicability of FBT should not arise.
In the case of medical reimbursement, employees are liable to pay income tax as a perquisite subject to monetary limits of exemption.
Rahul
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