Can We Increase Medical Allowances from Rs. 1250 to Rs. 1500 and Still Get Reimbursement?

Dear Team,

I am looking for anyone to suggest for me. As per government rules, we can provide Rs. 1250 as medical allowances. Instead of Rs. 1250, can we change it to a maximum amount like Rs. 1500? Also, will it be eligible for medical reimbursement?

Thank you.

Dear,

As per government norms, the maximum medical allowance is Rs. 15,000/- per annum. Hence, monthly it is Rs. 1,250/-. If you are giving above Rs. 1,250/-, then it will come under tax.

Are you looking at reimbursing medical expenses of employees? Or are you looking at structuring total salary and putting a part of the salary as a medical allowance?

Thank you.

Dear Saswata,

Thank you for your information. We are incorporating this Medi allowance into the salary breakdown starting from the month of June. Therefore, instead of compensating for the last two months at 1250, we are considering adjusting it to 1500.

If I proceed with 1500, it will amount to 15000 in total. Otherwise, I will have to collect the medical bills from the employees for 12500.

Thank you.

Options for Medical Benefits

There are basically two options.

Reimbursement

This is tax-free for the employee as it's not considered income. It's tax-deductible for the employer as it is a valid and allowed business expense. There is no limit; it can even be a lakh per year without raising any objections. However, you need a valid bill from the employee for the reimbursement, of proper value. You can set a reimbursement limit, meaning that if the invoices submitted are higher, you will only reimburse a set amount per year. This requires a system to keep track.

Medical Allowance

This cannot exceed the limit specified by the government under the income tax law. It's not that it can't exceed; it's just that if it does, the employee will be liable to pay income tax on it if they exceed the total earning levels specified under the tax slabs. You can do a combination of both, such as providing an x amount as an allowance and a y amount per year as reimbursement. This adds more complexity from a control point of view.