Medical Reimbursement, Medical Allowance and Mediclaim , all these sound similar but they all have different tax implications in Income Tax Act.
Medical Reimbursement –
Medical Reimbursement is a reimbursement of medical expenses incurred by the employee for his own or his family member’s*. To claim this reimbursement, an employee is required to submit medical bills or cash memos to his employer and after verification by the employer, the amount will be reimbursed up to a certain limit. This reimbursement is not pre-determined or fixed. Medical Reimbursement up to Rs. 15000 p.a. is exempt from Income Tax.
*family member’s include: The Spouse and Children of the employee. Children may be dependent or independent (married or unmarried). Parents, Brothers & Sisters of the employee wholly or mainly dependent on the employee.
The Medical bills may not necessarily be of some Govt. Hospital or any other Hospital. It can be of any expense incurred on Medical Treatment for self or family members in private clinic/hospital etc. Thus, Medical Reimbursement is a Tax-free perquisite (up to extent of Rs.15000).
Apart from the above exemption of Medical Reimbursement, the following are also not taxable as per section 17(2) of Income Tax Act if treated in India:
1. Any amount of medical expenditure incurred by the employee for self or family members at a hospital run by the employer.
2. Any amount reimbursed for treatment in Government hospital or a hospital maintained by local authority or hospital approved by the Government for employees’ treatment.
3. Any amount paid by the employer towards the scheme of General Insurance Company for insuring the health of the employee.
In Budget 2018, Standard deduction of Rs.40,000 has been proposed to replace Transport Allowance of Rs.1600 p.m i.e Rs. 19,200 p.a and reimbursement of miscellaneous medical expenses of Rs.15,000 p.a.
Can I claim medical expenditure related to previous years?
The medical expenditure, which is incurred by the employee in the said financial year, can be claimed in same financial year itself by the employer and not of any other previous years.
Medical Allowance –
Medical allowance is a fixed component that you receive as part of your monthly salary; such allowance is taxable under the head salary income. No bills are required to be submitted for taking this allowance.
Difference between the Medical Reimbursement and Medical Allowance:
Medical Allowance and Medical Reimbursement both are the part of the salary structure but Medical Allowance is just an allowance and is fully taxable in the hands of employee whereas Medical Reimbursement is a perquisite and is exempt to a certain limit if employee submits original medical bills to employer. Medical Reimbursement is a Tax Free Component and it is exempted up to the amount spent by employee or Rs.15000 whichever is less.
A) Mr. Kumar is working in XYZ Private Ltd. and spent Rs.12, 500 on medical expenditure on his and his spouse for the purchase for medicines during the financial year. Thus, to claim this medical expenditure from employer, he is required to submit original medical bills or cash memos to XYZ Private Ltd. to claim income tax exemption to the extent of Rs.15,000.
B) Alternatively, in case where Mr. Kumar has incurred medical expenses of more than Rs.15,000 for example Rs.22, 000, in such scenario Mr. Kumar can only claim tax exemption from his salary income to the extent of Rs.15,000 and the remaining Rs.7,000 will become taxable as per Income Tax Slab rate.
Mediclaim refers to Medical Insurance Premium or Health Insurance Premium. Deduction u/s 80D can be claimed on the premium paid towards mediclaim policy taken on the health of the self, spouse, parents or dependent children. But, the payment should be made by any mode, other than cash.
Medical insurance premium paid for Self, Spouse or dependent children can be claimed u/s 80D upto Rs 25,000. This limit has been increased to Rs 25,000 in Budget 2015-2016 which was earlier Rs.15,000.
If such person is specified as a senior citizen then the deduction amount will be Rs. 30,000 for AY 17-18.
An additional deduction for Medical Insurance premium paid for parents is tax deductible to the extent of Rs 25,000,if they are less than 60 years of age.
If your parents are senior citizens (60 years and above) then the maximum allowable deduction is Rs 30,000.
Amendment: The Limit of Rs.30,000 for senior citizens has been increased to Rs.50,000 in Budget 2018.