Medical Allowance and Medical Reimbursements for Medical Expenditure

The terms “medical allowance” and “medical reimbursements” are often mistakenly used interchangeably, especially in the context of tax implications. However, they refer to distinct concepts having different tax treatments.

Of the two, tax on medical reimbursement has undergone significant changes that are important to understand. In Budget 2024, a key update has been introduced.

Starting from FY 2024-25, the standard deduction under the new regime is increased to ₹75,000. It also encompasses the tax benefits on medical reimbursements for medical expenditures.

In this page, we will discuss everything you need to know about medical allowance and medical reimbursements for medical expenditures.

What is Medical Allowance?

Medical allowance is a fixed amount paid by employers to their employees to cover their medical expenses. It is a part of the salary package and is provided to the employees irrespective of their need to pay for their medical expenditures.

It means, medical allowance is given to the employees, regardless of whether or not they actually use it for any medical expenses. Employees are not required to submit medical bills or payment receipts to receive this benefit.

As medical allowance for employees is a part of the salary, it is taxable under the head, “Income from Salary”. Thus, a medical allowance exemption is not applicable, and you will be taxed under your applicable tax slab.

What is Medical Reimbursement?

Medical reimbursement is an extra benefit employers offer their employees. It’s provided over and above the salary component. Employers repay employees for their actual medical expenses after they submit their medical records, bills and payment receipts.

Employees must obtain medical documents and treatment bills from the hospital detailing their health condition and payments made. They then submit these documents to their employers for reimbursement.

Unlike medical allowance, tax on medical reimbursement is exempt up to ₹15,000 per year, i.e., medical reimbursement received from an employer up to ₹15,000 is not taxed.

However, in Budget 2018, the exemption applicable on tax for medical reimbursement was replaced with a standard deduction of ₹40,000 that includes transport allowance and medical reimbursement. It was applicable from FY 2018-19.

This standard deduction in income tax, also referred to as automatic tax deduction, has seen notable changes over the years. We will discuss it in detail in the next sections.

Difference Between Medical Allowance and Medical Reimbursement

Medical Allowance vs Medical Reimbursement: How Are They Taxed in India Under the New Tax Regime?

Tax on Medical Allowance Under the New Tax Regime

Medical allowance for employees is included in the salary and is taxable under the new tax regime. It falls under the category of “Income from Salary”, which contributes to the total taxable income. It will be taxed according to your income tax slab rate.Therefore, a medical allowance exemption is not applicable.

Medical Reimbursement Taxability Under the New Tax Regime

As discussed in the previous section, Budget 2018 introduced a standard deduction that replaced the transport allowance and medical reimbursement. All salaried individuals are eligible to claim this standard deduction.

Here is the chronology of events to understand standard deduction in the new tax regime.

Thus, the tax exemption on medical reimbursement is no longer separately available. It is included as part of a standard deduction of ₹75,000 under the new tax regime effective from FY 2024-25.

What if I Have Opted for the Old Regime?

If you have opted for the old regime, the medical allowance remains taxable under the category of “Income from Salary”, which contributes to the total taxable income. It will be taxed according to the income tax slab rate.

And under the old tax regime, the medical reimbursement benefit is included in the standard deduction, which remains at ₹50,000.

Are There Any Other Ways to Claim Medical Reimbursement?

Yes, if you have recurring ailments that require regular treatments or hospitalisation, a health insurance plan is the best way to obtain medical reimbursement. It is a financial safety net that can cover your unexpected medical expenses.

Health insurance payouts are also not taxed since they are not considered as “income” or “profit”. They are reimbursements for incurred medical expenses.

Furthermore, under the old tax regime, you can claim a tax deduction on your yearly health insurance premiums up to ₹1,00,000. It is applicable under Section 80D of the Income Tax Act 1961 for you, your immediate family (including your spouse and dependent children) and your parents.

You can get all of these benefits and more from Reliance General Health Insurance plans. We offer comprehensive coverage for a wide range of medical expenses at an affordable rate.

Wrapping Up

Medical allowance is a fixed amount included in the salary package, regardless of the actual medical expenses incurred. It is taxable under the “Income from Salary” category in both the old and new tax regimes.

In contrast, medical reimbursements are benefits provided by employers to cover actual medical expenses incurred by employees. While there was previously a tax exemption for medical reimbursements up to ₹15,000, this has now been replaced by a standard deduction of ₹50,000 under the old tax regime and ₹75,000 under the new tax regime.

FAQs About Medical Allowance and Medical Reimbursements for Medical Expenditures

1. Is the medical expenses tax deduction provision still available in 2024?

No, the tax exemption benefit applicable to medical reimbursements for medical expenditures has been replaced with a standard deduction. The standard deduction is ₹50,000 under the old tax regime and ₹75,000 under the new tax regime.

2. What purpose do medical allowances and medical reimbursements serve in your salary structure?

Medical allowance is a fixed amount included in your salary package, regardless of the actual medical expenses you have incurred.

On the other hand, medical reimbursement is provided by your employer to cover your actual medical expenses.

Although medical allowance is taxable, there was previously a tax exemption for medical reimbursements up to ₹15,000. However, this has been replaced by a standard deduction of ₹50,000 under the old tax regime and ₹75,000 under the new tax regime.

3. Is medical allowance part of CTC?

Yes, medical allowance is part of CTC.

4. How do you claim medical allowance?

Medical allowance is a part of your salary package and, hence, taxable under “Income from Salaries”. Therefore, claiming a medical allowance exemption is not applicable.

5. How can I claim the standard deduction?

You can claim standard deduction in the new tax regime and old tax regime by subtracting the applicable amount directly from the taxable income.

6. Is medicare reimbursement compulsory?

No, medicare reimbursement is not compulsory. You can get it reimbursed from your employer. However, there is no separate exemption applicable to tax on medical reimbursement. It is replaced with the standard deduction.

If you opt for the old tax regime, the standard deduction is ₹50,000, and it is ₹75,000 for the new tax regime for FY 2024-25.

7. Can I claim reimbursement for medical expenses in 2024?

If your employer offers this benefit, then yes you can. However, the tax exemption for this is now included under the standard deduction – ₹50,000 under the old tax regime and ₹75,000 under the new tax regime for FY 2024-25.

8. Are mediclaim premiums paid by employees eligible for reimbursement?

Mediclaim premiums paid by employees are not eligible for reimbursement. However, they can be considered for a tax deduction under Section 80D of the Income Tax Act 1961 under the old tax regime.

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