As per the Income Tax Department norms, individuals are required to pay their income tax dues as per the tax slab they fall into. However, did you know that your entire salary is not taxable? For instance, the exemptions under standard deductions today were available as transport and medical allowance exemption till AY 2018-19. These exemptions significantly helped in lowering a taxpayer’s taxable income.
Read through the following sections to know more about this tax exemption.
Medical allowance is a type of fixed allowance received by the employees each month even if they do not submit bills to substantiate the expenditure. Medical allowance is included in employee’s salary every month. This allowance throws light on the importance of health of the staff of an organisation and helps them support their medical expenses.
Many individuals use the terms medical allowance and medical reimbursement interchangeably. However, they feature different tax treatments as per the Income Tax Act.
Having said that, medical allowance is a part of an employee’s salary. Whereas medical reimbursement is the amount that an employee receives from his/her employer after submitting required medical bills.
Thus, medical allowance, being a fixed part of your salary, is taxable as per the tax slab you fall into. Meanwhile, reimbursement is a tax-free component, featuring an exemption up to Rs. 15,000.
Here is an example to clarify this point further –
Mr X works for ABC Ltd, and his monthly medical expenses are Rs. 10,000. Now, once he submits the required bills to his employer for income tax deductions, it will bring his taxable income down by Rs. 10,000. Whereas his monthly medical expenses are Rs. 20,000, and his employer reimburses the total amount as a part of his salary. In that case, Mr X is eligible for an income tax deduction of up to Rs. 15,000 and the remaining Rs. 5,000 will be taxed as per the applicable deduction.
To be eligible to claim medical allowance exemption in income tax, individuals had to meet the following parameters:
Wondering how much medical allowance was exempt from tax?
Upon meeting the eligibility, a taxpayer was allowed to claim a maximum of Rs. 15,000 exemption for medical allowance.
Note: Note that the provisions of medical allowance exemption are no longer valid. During the annual budget announcement of 2018, the finance minister reintroduced the standard deduction provisions. Thus, from FY 2019-20, the medical allowance exemption is not a standalone tax-saving measure.
As per Section 17(2) of the Income Tax Act, a prerequisite is any kind of benefit attached to an employee’s salary. It can be extended in cash or kind. Further, they are taxable only if the prerequisites are:
Moreover, the following things fall under the prerequisites according to Section 17(2) of the Income Tax Act:
The following pointers detail the medical allowance exemption under Section 17(2) of the Income Tax Act:
However, to avail of these benefits, an employee has to furnish a certificate from the concerning hospital. The said certificate must mention the nature of treatment and probable expenditures.
Also Read: What Is Section 80D Of Income Tax Act?
The Income Tax Department has rolled out certain provisions to reduce the medical expenditure burden on employees. While the medical allowance exemption now stands suspended, you can still avail of tax exemption on your salary as per standard deduction provisions.
Ans: As per the amendments of FY2020-21, salaried taxpayers can now claim a standard deduction on their total salary amount of Rs. 50,000, whichever is lower. Further, you can claim this deduction irrespective of their current spending.
Ans: Before the government introduced standard deduction, employees were eligible to claim a medical allowance exemption of Rs. 15,000 a year. In addition, they were allowed to claim an exemption for transport expenses worth Rs. 1,600 per month.
Ans: Medical reimbursement was tax-free if the hospital where an employee seeks treatment was run by local authorities, employers, and central or state governments. The reimbursement was also free from tax if the hospital featured approval from the Chief Commissioner of Income Tax.
Ans: Employees were able to receive medical reimbursement upon submitting all original medical bills to their employer. Upon approval, the company would disburse the expenses incurred as per the overall limit of Rs. 15,000, which was tax-free.
Ans: Employees were able to claim medical allowance exemption for themselves and their family members. Here, the term family refers to an employee’s spouse, children, parents and sisters and brothers. However, they must be dependent on the individual.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
|Section 145A||Section 80P||Section 92CD|
|Section 281||Section 32(2)||Section 270A|
|Section 1399||Section 192A||Section 11|
|Section 35AD||Section 80C||Section 32|
|Section 206AA||Section 92E||Section 9|
|Section 153||Section 10(10D)||Section 194DA|
|Section 10AA||Section 80GG||Section 80TTB|
|Section 80JJAA||Section 1940||Section 23B|
|Section 206AB||Section 44AB||Section 87A|
|Section 115JB||Section 154||Section 194D|
|Section 194J(1)(ba)||Sectio 80U||Section 194K|
|Section 56-59||Section 80TTA||Section 234C|
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