What Is Medical Reimbursement – Its Rules, Taxation and How to Make Claim

Access to good healthcare is a fundamental right. But rising medical costs make it difficult for many salaried employees to get proper treatment, at the right time. To help employees and their families get the best medical attention, employers provide medical reimbursement. However, you can avail of this benefit if you and your employer follow the medical reimbursement rules. Moreover, you can also claim tax exemption up to Rs. 15,000.

This article provides a detailed overview of medical reimbursement, its rules, how to claim it, tax exemption and more. Keep reading!

What Is Medical Reimbursement?

Medical reimbursement is an agreement between an employer and employee in which the employer pays a portion of the employee’s medical expenses. Employees’ excessive work hours, job stress, etc., have led to the development of medical reimbursement. Consequently, the likelihood of high medical costs became a part of any employee’s financial burden. On the other hand, employers assume moral responsibility for monitoring all of these variables. You can also claim tax exemptions of up to Rs 15,000 on any other income, you can do the same with these reimbursements as well.

Medical Reimbursement Rules

In order to qualify for tax-exempt status under the Income Tax Act of 1961, the following conditions must be met:

• The money must have exclusively been used for medical expenditures by the employee.
• Self or family members, such as spouses, children, parents, siblings, and other dependents, must have paid for the treatment.
• The stated sum shall be reimbursed by the employer, which does not surpass Rs 15,000 in a financial year.

Only the employee’s actual out-of-pocket medical bill expenses are eligible for the exemption. Bills from pharmacies or treatment in clinics and state or federal hospitals may be included.

Also Read: Universal Health Insurance Scheme: Coverage, Benefits, Eligibility And More

How to Make Medical Reimbursement Claim

Following a few simple steps, an employee can file a medical reimbursement claim. First and foremost, be sure to provide your employer with copies of all relevant medical bills. Then, the following conditions must be considered:

• Medical reimbursement for treatment in a private hospital and a public hospital both have medical costs.
• Taxpayers would be required to pay income tax on expenses that surpass Rs 15,000 if they exceed that amount.

For reimbursement of medical expenses up to Rs 15,000, the employer will thereafter reimburse them without tax deduction.

Tax-Free Prerequisite For Medical Expenses Paid Abroad

The following are the tax-free conditions for medical treatment abroad that an employee or a member of his or her family can receive:

• It is tax-free if an employee or a member of the employer’s family is treated for medical reasons while overseas. The Reserve Bank of India limits the costs that qualify as tax-exempt.
• Expenses related to the treatment of an employee or a member of their family. As well as the cost of an attendant hired or arranged to comfort the patient during treatment.
• Patients and their attendants who are either employees or family members of employees are not taxed on their travel expenses. However, the expenses are tax-free if the employee’s salary is less than Rs.2,00,000.
• If the employee’s total income is more than Rs. 2,00,000, the travel expenditures of the patient/employee and the attendants are deductible.

Medical reimbursement is commonly mistaken for medical allowance, which is paid out as part of the regular wage. Section 10 of the Income Tax Act exempts employees from paying taxes on specific exceptional allowances. On the other hand, medical benefits are not mentioned as an exception under Section 10 and are subject to taxation as pay income. 

Furthermore, the medical allowance does not necessitate submitting any medical bills or proof. In contrast, medical reimbursement requires the submission of actual medical bills.

Differences Between Medical Reimbursement And Medical Allowance

Things to Note About Medical Reimbursement

• An employee cannot claim the preceding Fiscal year’s medical expenses.
• Employer-run, government-run, or Central Government-approved hospitals have no upper limit on expense reimbursements.
• In contrast to the medical allowance, medical reimbursement is separate and distinct. The employer covers medical expenses. While a set component, i.e., a predetermined amount, is supplied to employees as part of their monthly income to help with medical costs.
• Section 80D benefits are provided for Mediclaim policy premiums. These are not considered medical expenses. Section 80D of the Internal Revenue Code allows for a tax deduction in lieu of a medical payment but not for income tax exemption.

Also Read: Why Is It Important To Have Group Personal Accident Insurance?

Final Word

While Medical Allowance is a taxable monthly payment made to employees by their employers, reimbursement for medical expenses occurs when an employee receives a specific sum from their company. Employees can also claim medical expenses incurred outside of India. It is essential that all Medical Reimbursement bills bear the name of the patient or a dependent of the patient and come from a licensed facility.

For health insurance at an affordable monthly premium of Rs. 241, visit Navi Health Insurance or download the Navi app now!

FAQs