Medical Allowance Dilemma: What Happens When ESIC Isn't an Option for Employees?

Medical Allowance and Insurance Coverage Query

My query is related to medical allowance. The situation is as follows: Employees receiving Rs. 15,000 or less are covered under ESIC. The company does not have any tie-up with a medical insurance/group insurance company. Now, what if the medical allowance is mentioned in the total gross of the employee's salary, say Rs. 1250? What will be the impact on the employer in case an employee meets with an accident or falls sick, and only a medical allowance of Rs. 1250 is given to him, not covered under any medical insurance policy?

In the case where ESIC is not applicable, is medical insurance mandatory in that condition? Please give your valuable comments on this. I am waiting for your answers now.

Thank you.

In respect of employees who are covered by ESI Schemes, you have no confusion, I believe. Now, in respect of those who are not under ESI, it is not mandatory that the employer should provide for any medical insurance. As you said, it is okay if you pay a medical allowance of Rs 1250 every month along with the salary. It is not compulsory that in case of sickness the employer should bear the expenses. However, in the event of an accident while on duty (I repeat, while on duty), the employer is liable to meet the expenses and even pay the compensation for partial disablement as provided under the Workmen's Compensation Act. At the same time, if the employer had taken insurance suitable to cover such accidents, naturally, the cost would have been less. In the case of accidents resulting in death, the employer has to bear the cost.

Medical Allowance and Insurance Policies

Medical allowance as a component of salary will not serve the above purpose for which separate accident/death cum hospitalization policies should be preferred. The cost of it, i.e., the premium should be paid by the company and not to be recovered from the employee. It is okay if you recover the premium paid in respect of any mediclaim policy intended to cover hospitalization expenses of the employees and their family.

Regards,
Madhu T.K.

I am truly grateful to receive a response from someone as knowledgeable as you. Your replies are always precise and thorough, and my query has been addressed satisfactorily. However, I have a further question. If a medical allowance is provided within the gross salary, up to Rs. 1250/- per month, which is tax-exempted, is it mandatory for the employee to submit medical bills during the tax return process at the end of the financial year to benefit from the tax exemption? Please provide your insights on this matter.

Your assistance is greatly appreciated.

Thank you.

In order to get tax exemption, the employee is required to produce bills that are spent on treatment and the purchase of medicines for himself, spouse, children, and dependent parents.

Regards,
Madhu.T.K

Adding to the discussion, if an employee is covered under ESIC, then their salary is less than Rs. 15,000 per month and less than Rs. 1,80,000 per annum. Income tax for the current year is applicable for taxable income above Rs. 2,00,000 per annum. So, in the above case, medical bills are not compulsory. If the taxable income is above Rs. 2,00,000, then medical bills would help in reducing tax liability.

Warm Regards,
Vikas Goel
[Email Removed For Privacy Reasons]

It will be very useful if you could further answer the following:

(i) In case the company is going to provide a medical policy to employees and the premium is to be paid by the company, will that be shown in the CTC of the employee?

(ii) Can it be possible to deduct the premium amount from the employee's salary and some part from the employer also, and deposit the same in the medical insurance policy, as is done for an employee covered under ESIC?

Thanking you in anticipation.

My answer -

1. Frankly speaking, it should form part of the CTC.
2. As the answer to the above is positive, the entire amount is shown as salary to the employee and paid to the insurance company on his behalf. For example:
- Salary: ₹10,00,000 p.a.
- Medical Insurance: ₹5,000 p.a.
- CTC: ₹10,05,000 p.a.

However, some companies don't even show medical insurance of the employee in CTC. It's a policy matter and does not have an income tax angle to it in either case.

Warm Regards,
Vikas Goel

Dear Sir/Madam,

If I operate pan India with headquarters in a city, and in all other places, I have 2-3 employees per city. Therefore, I am not able to provide them with ESI (as ESI registration is possible only if I have a minimum of 10 employees in that city). Will group insurance for medical and compensation cover my statutory liability?