Taxation of Perquisites – Medical Facilities

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Taxation of Perquisites – Medical Facilities

Perquisites are benefits in terms of cash or kind which an employee is entitled to in addition to the provision of normal salary. Perquisites are included under the head “Salaries” while filing income tax returns. Taxpayers should note that perquisites are fully taxable if it is in the form of medical allowance. However, reimbursement of medical expenses incurred by an employee shall be excluded from income tax. Family, for the purpose of valuation under this provision, includes the spouse and children of the individual; and the parents or siblings of the employee who are entirely dependent on the taxpayer.  The children of the individual could be dependent/independent, married/unmarried, and major/minor. Also, medical insurance premium remitted on the employee’s behalf or reimbursed to the employee by the employer is not taxable in the assessment of the employee. In this article, we briefly discuss the concept of the taxation of perquisites for medical facilities availed by an employee.

Meaning of Perquisites

Section 17(2) of the income-tax act provides that a perquisite may include any of the following:

  • Value of rent-free or concessional accommodation provided by the employer
  • Value of any benefit/amenity provided to specified employees at free or concessional rates
  • Remittances of an employer pertaining to any obligation to be met by an employee
  • Remittances of an employer towards any life insurance availed on the employee or to effect a contract of an annuity
  • Values of other fringe benefits which are notified by the Central Government from time to time by promulgating notifications in the Official Gazette

Exemptions of Treatment in Facilities

Medical treatment provided to an employer in any of the following clinics/hospitals is exempted from taxation:

  • Any hospital under the ownership/maintenance of the employer
  • Hospital associated with the Government or local authority
  • A private hospital, if it is endorsed by the Government for the treatment of its employees
  • Specified medical facility granted by the Chief Commissioner

Treatments Availed Abroad

The following are the provisions for perquisites availed by employees treated abroad:

  • Perquisites in the form of medical support provided by an employer to an employee deployed abroad or to his/her family member are exempted from tax as per the specifications of the Reserve Bank of India.
  • Expenses incurred on the travel of the employee or any other family member or his/her attendant will be exempted from the provisions of tax if the gross total income of the employee is confined to Rs. 2,00,000 (Exemptions are only provided to one attendant).
  • Cost of the employee’s or any of the family members/attendants accommodation abroad for the purpose of medical treatment is exempted up to the limit specified by the Reserve Bank of India (RBI) (Exemptions are only provided to only one attendant).

To avail the tax benefits mentioned above, the employee must obtain a certificate from the hospital declaring the nature of decease and the expenditure involved.

Other Types of Treatments Availed in India

In addition to the above-mentioned provisions, any other expenditure incurred or reimbursed by the employer for the provision of medical facilities in India are currently exempted from tax up to an aggregate of Rs. 15,000 per assessment year. This is due to the change in the provisions of the Income Tax Act from the assessment year of 2019-20, whence a standard deduction of Rs. 40,000 in lieu of transport allowance and medical reimbursement would be allowed.

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Post by Sreeram Viswanath

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