Medical Allowance is a fixed amount of money paid to the employees by an employer as part of their total salary to meet their medical needs. This allowance is provided to the employee every month whether the employee submits the medical bills to substantiate the expenditure or not. However, such fixed pay is fully taxable every month under the head “Income from other sources”. In this article, we look at the Medical Allowance in detail.
Also, read about Conveyance or Transport Allowance
Medical Allowance Vs Medical Reimbursement
As mentioned above, a medical allowance is a fixed allowance paid by the employer to the employee regardless of whether the employee avails the medical treatment and presents bills to show the expenditure or not. Now, medical reimbursement occurs only when the employer reimburses the amount actually incurred by the employee. This reimbursement can be claimed after the employee submits medical bills which are then verified by the employer to confirm whether the bills are valid. Also, reimbursement of medical expenses by employers to the salaries employees does not come under the tax ambit.
Applicability for Medical Reimbursement
The following are the eligibility criteria to avail medical reimbursement from the employer:
- The medical reimbursement can be claimed if the medical expenses are incurred by the employee or his/her family members, including spouse, children, brother or sister.
- The treatment can be availed from either public or private hospitals/institutions.
- The medical bill should be submitted to the employer and should contain the details of medical fees paid to the doctors and expenses made to the purchase of medicines.
- If the amount of employee’s medical bills exceeding the limit of allowance, if the reimbursement provided by the employer is taxable as additional income.
Note: If the employee does not submit the bills or receipts with him/her, then the employee cannot seek reimbursement.
Procedure to Claim Medical Reimbursement
The employee needs to submit all the medical bills and receipts to the employer or company to claim medical reimbursement. According to the Union Budget of the financial year 2018-19, there have been new proposals and few changes made on Standard Deductions for the benefit of employees. A standard deduction of Rs.40000/- will be deducted from the annual income earned by the employee.
The standard deduction is an amount of deduction fixed for both transport allowance (conveyance allowance) and medical reimbursements to an amount of Rs.40000/- per year which can be reduced for the salaried taxpayers from the total income.
This deduction is the replacement of medical reimbursement of Rs.15000 per annum and conveyance allowance of Rs.1600 per month, which is usually deducted from the gross annual salary of an employee. Before an employee would get a deduction of medical reimbursement of Rs.15000/- per annum and conveyance allowance of Rs.1600 per month, which is Rs. 19,200/- per annum, which leads to a total amount of Rs. 34,200/- But the proposed standard deduction gives a benefit of Rs.40000/-, which is advantageous to the employee, as there is a difference of Rs. 5800/- per year.
The standard deduction from the income of the employee is chargeable under the head salary. The calculation for the taxable salary income of the residential individual is tabulated below:
|Particulars||Financial Year 2017-2018||Financial Year 2018-2019|
|Gross Income||Rs. 12,00,000||Rs. 12,00,000|
|Medical Reimbursement||Rs. 15,000||Not Applicable|
|Travel Allowance (Conveyance Allowance)||Rs. 19,000||Not Applicable|
|Standard Deduction||Not Applicable||Rs.40,000|
|Net Income (Salary)||Rs. 11,65,800||Rs. 11,60,000|
|Tax Payable||Rs. 1,62,240||Rs. 1,60,500|
|Education cess @ 3% / 4%||Rs. 4,867.2 for 3%||Rs. 6,420 for 4%|
|Total Tax Payable||Rs.1,67,107.2||Rs. 1,66,920|
Note: The taxpayer can save Rs.187/- after the application of standard deduction.
Medical Reimbursement Form
The salaried taxpayers do not require to submit the medical bills to claim medical deductions. In some cases, companies would require medical bills reimbursement form, which is issued by the company where the employee is serving. Medical bill reimbursement format differs from company to company.
Medical Allowance for Pensioners
As per the amendment made through the budget, pensioners can claim deductions up to Rs. 40,000 in the form of standard deductions. It has been clearly stated by the income tax department, that pension received by the taxpayer from the former employer should be allowed for the deduction of Rs. 40,000 for computing taxable income. The standard deduction made available for the financial year 2018-2019 would be continued to the assessment year 2019-2020.
To know more about Pension Tax Deductions click here