Medical Allowance

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.

Standard Deduction

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.

Tax Calculation

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
Difference	187

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. Also read: Pension Tax Deductions!

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Frequently Asked Questions

Common questions about Medical Allowance and Reimbursement Tax Implications.

Medical Allowance is a fixed amount paid by the employer to the employee every month, irrespective of whether the employee submits medical bills or not. Medical Reimbursement, on the other hand, is when the employer reimburses the actual medical expenses incurred by the employee after they submit the bills and receipts for verification.

Yes, Medical Allowance is fully taxable under the head "Income from other sources" every month, regardless of whether medical expenses were incurred or not.

Employees can claim Medical Reimbursement for medical expenses incurred by themselves, their spouse, children, brother, or sister. The treatment can be availed from either public or private hospitals/institutions, and the medical bills must be submitted to the employer.

The Standard Deduction is a fixed deduction of Rs. 40,000 per year from the employee's annual income, which covers both transport allowance and medical reimbursements. This deduction is more beneficial than the previous system, where employees could claim a maximum of Rs. 34,200 (Rs. 15,000 for medical reimbursement and Rs. 19,200 for conveyance allowance).

To claim Medical Reimbursement, the employee needs to submit all medical bills and receipts to the employer or company, detailing the medical fees paid to doctors and expenses for purchasing medicines.

Some companies may require employees to fill out a medical bill reimbursement form issued by the company. The format of this form may differ from company to company.

Yes, as per the amendment made through the budget, pensioners can claim a deduction of up to Rs. 40,000 in the form of Standard Deductions on the pension received from their former employer.

The Standard Deduction is deducted from the employee's gross income under the head "Salary" to calculate the net taxable income. For example, if the gross income is Rs. 12,00,000, and the Standard Deduction is Rs. 40,000, the net taxable income would be Rs. 11,60,000.

The Standard Deduction of Rs. 40,000 was introduced in the financial year 2018-2019 and has been continued for the assessment year 2019-2020.

No, an employee cannot claim both Medical Allowance and Medical Reimbursement. Medical Allowance is a fixed amount paid by the employer, while Medical Reimbursement is claimed by submitting actual medical bills and expenses.