Taxability of Employer-Provided Medical Expenses

Employers provide medical allowance and reimbursement to employees. Medical treatment is a daily expense for most people. Companies usually offer benefits to employees. Some benefits are tax-free and some are chargeable under head of salaries. Learn more about medical allowance and reimbursement, as well as family coverage.

This document covers

1. Comparing Medical Allowance and Medical Reimbursement
1. Medical Allowance
2. Medical Reimbursement
2. Who does Family includes?

1. Comparing Medical Allowance and Medical Reimbursement

1A. Medical Allowance

It is a fixed amount of money paid by an employer to employee on monthly basis. Medical Allowance is fully taxable and employee is not required to furnish any bills to employer to get the medical allowance

1B. Medical Reimbursement

It means the employer will reimburse the amount of expenditure incurred by the employee towards medical treatment. Employee needs to furnish the bills to claim medical reimbursement from employer

1. Income Tax treatment in case of medical treatment in any hospital maintained by the employer : The value of medical treatment provided by an employer to an employee or any member of his family in any hospital maintained by employer is tax free in the hands of employee.
2. Income Tax treatment in case of reimbursement of expenditure actually incurred on medical treatment : Any amount paid by the employer in respect of any medical expenditure actually incurred by the employee on self or family member’s medical treatment is tax free in the hands of employee.
   Documentation required to claim the above tax benefit :

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   To claim the medical expenditure as tax free, employee needs to furnish the following details.

   1. Certificate from the hospital specifying the disease or ailment for which the medical treatment is required.
   2. Receipts of amounts paid to hospital.
3. Income Tax treatment of amount paid towards medical expenditure incurred outside India on medical treatment : Any expenditure incurred by the employer or any amount paid by the employer on any expenditure actually incurred by the employee on the following is tax free in the hands of employee
   1. Medical treatment of the employee or any member of the family of such employee outside India
   2. Travel and stay abroad of the employee or any member of the family of such employee for medical treatment.
   3. Travel and stay abroad of one attendant who accompanies the patient in connection with such treatment.
   Note 1 : The expenses in respect of travelling of the patient and attendant will be exempt if the employee’s gross total income as computed before including the said expenditure does not exceed Rs 2 lakhs.
   

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   Note 2 : The employee benefit in respect of medical expenditure on medical treatment and stay abroad will be exempt only to the extent permitted by RBI.
   
   
   
4. Income Tax treatment in case of premium paid to effect an insurance on the health of employee : It is not taxable in the hands of employee
5. Income Tax treatment in case of reimbursement of premium paid to effect an insurance on the health of employee or his family : It is not taxable in the hands of employee.

2. Who does Family includes?

• Family includes spouse, children of the individual. Children may be dependant or independent, married or unmarried.
• Family also includes parents, brothers and sisters of the individual if they are wholly or mainly dependent upon him.