The existence of medical reimbursement came about due to employees putting in long working hours, job stress, genetics or other factors. Through this the probability of high medical expenses were bound to become a part of any employee's expenditure. But, on the flip side, the moral responsibility to keep an eye out for all these factors is presumed by employers. Thus, they provide a lot of health benefits not just to their employees but also extend the facilities to their families. Medical reimbursement is basically an arrangement between an employer and an employee under which the employer reimburses a portion of the medical expenses incurred by the employee. Now, this is essentially an income and like any other income, you can also claim tax exemptions of up Rs 15,000 on these reimbursements as well.
Now, you may have heard about ‘medical reimbursements’ and ‘medical allowance’. The terms might sound interchangeable, but they are not. To understand the difference, let’s first look at what they mean and how they differ from one another. Let’s also look at how you can avail tax benefits from medical reimbursement.
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Sometimes, instead of reimbursing a portion of the expenses already incurred by an employee, the employer takes a proactive step. They provide a fixed amount on a monthly basis for their medical bills. This is known as a medical allowance. But, this amount is not eligible for any deductions from your taxable income. It is also fully taxable under the ‘Income from Other Sources’ head in Form 16.
The terms ‘medical reimbursement’ and ‘medical allowance’ are easily perceivable to be interchangeable. However, they encompass different tax treatments under the Income Tax Act.
According to many experts in the industry, the correct name of the medical component of your salary should be ‘medical reimbursements’ and not ‘medical allowance’. This is because medical allowance is taxable in several cases, unless specifically mentioned as tax exempted.
Tax exemptions for medical reimbursements fall under Section 80D, with a maximum limit of Rs 15,000 per annum. If bills regarding such reimbursements are not submitted timely, you will have to pay taxes at 30% for the claimed Rs 15,000.
Filing your income tax returns can get you multiple benefits. Here’s how. Medical reimbursements are open to scrutiny by the Income Tax department and auditors. Thus, not paying taxes on amounts for which no bills are paid can result in TDS related penalties for the employer. However, if you provide authentic bills for claiming tax exemptions, it is the employer’s responsibility to mention it while filing your TDS and reimburse that amount.
While this is a benefit available for all employees, there are certain rules related to medical reimbursements that both, you and your employers, need to follow.
Only medical expenses incurred for yourself, your spouse, your children, or completely dependent parents and siblings can be claimed for tax exemptions.
Bills for such reimbursements can relate to medicines bought from pharmacies or any treatment undergone at any clinic, private or public hospital.
You can submit these bills only with your employer. You won’t be able to claim any such reimbursements when you file your income tax returns.
A standard deduction of Rs 40,000 has been re-introduced in the financial year 2018-19. If you have any tax exemptions under medical bills plus transport allowances, you can claim them under these new deductions.
If your employer offers you a medical allowance as a part of your salary, try and work out a way that allows him to provide you a medical reimbursement instead. Along with being able to get medical treatments done, you will also be able to avail tax benefits!
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