Are medical reimbursements eligible for tax deductions? See the changes made in income tax rules

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Published: March 6, 2019 5:54:08 PM

While Medical Reimbursement on any disease was tax free up to Rs 15,000 u/s 17(2) of the Income Tax Act till last year, Medical Allowance was fully taxable.

income tax, Income Tax Act, Income Tax Rules, tax benefits on medical expenditures, medical reimbursement, medical allowance, conveyance allowance, standard deduction, Section 17, Section 80D, Section 80DD, Section 80DDB, Section 80U, list of specified diseases eligible for tax deductionsIncome tax jargon makes many people confused. One of such confusion is with Medical Reimbursement and Medical Allowance.

Income tax jargon makes many people confused. One of such confusion is with Medical Reimbursement and Medical Allowance. While Medical Reimbursement on any disease was tax free up to Rs 15,000 u/s 17(2) of the Income Tax Act till last year, Medical Allowance was fully taxable. However, may people used to claim the full benefit without any actual expenditure or even on Medical Allowance.

From this financial year (2018-19), the Medical Reimbursement u/s 17(2), along with Conveyance Allowance, has been replaced with Standard Deduction. For the current financial year, the amount of Standard Deduction is Rs 40,000.

So, even if there is some reimbursement of medical expenses on normal treatment and medicines, you will not be able to get any tax benefit as the reimbursed amount will be treated as perquisite and will be taxed accordingly.

However, apart from Section 17(2), tax benefits on account of medical expenditures may be availed as per other sections or income-tax rules.

Tax exemption u/s 17

Tax benefit will be available on any sum paid by an employer in respect of any expenditure actually incurred by an employee on his/her medical treatment or any other member of his/her family in hospitals approved by the Chief Commissioner in respect of following diseases or ailments, as these will not be treated as perquisite:
(a) cancer;
(b) tuberculosis;
(c) acquired immunity deficiency syndrome;
(d) disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system, central nervous system, urinary system, liver, gall bladder, digestive system, endocrine glands or the skin, requiring surgical operation;
(e) ailment or disease of the eye, ear, nose or throat, requiring surgical operation;
(f) fracture in any part of the skeletal system or dislocation of vertebrae requiring surgical operation or orthopaedic treatment;
(g) gynaecological or obstetric ailment or disease requiring surgical operation, caesarean operation or laperoscopic intervention;
(h) ailment or disease of the organs mentioned at (d), requiring medical treatment in a hospital for at least three continuous days;
(i) gynaecological or obstetric ailment or disease requiring medical treatment in a hospital for at least three continuous days;
(j) burn injuries requiring medical treatment in a hospital for at least three continuous days;
(k) mental disorder – neurotic or psychotic – requiring medical treatment in a hospital for at least three continuous days;
(l) drug addiction requiring medical treatment in a hospital for at least seven continuous days;
(m) anaphylectic shocks including insulin shocks, drug reactions and other allergic manifestations

Loans for medical treatment of above diseases specified in Rule 3A are also exempt, provided the amount of loan for medical reimbursement is not reimbursed under any medical insurance scheme.

Tax exemption u/s 80D

Tax benefits will also be available on medical expenditure for treatment of senior citizens provided no health insurance is taken. Any assessee may get tax benefit on medical expenditures up to Rs 50,000 u/s 80D, if he/she or any member of his/her family is a senior citizen. Such an assessee may also avail additional tax benefit up to Rs 50,000 on medical expenditure of his/her parents, provided they are also not covered by any health insurance. So, maximum benefits available u/s 80D on medical expenditure is Rs 1 lakh in a financial year.

Tax exemption u/s 80DD

Resident employees may avail tax deductions up to Rs 75,000 from his/her gross total income on expenditures incurred for medical treatment (including nursing), training and rehabilitation of a dependent, who is a person with disability. In case of severe disability, the deduction limit is up to Rs 1,25,000 in a financial year.

Deductions u/s 80DD will also be available if the amount is paid or deposited under a scheme framed for the maintenance of such a dependent by the Life Insurance Corporation or any other insurer or the Administrator or the specified company, subject to the conditions specified in this regard and approved by the Board in this behalf.

Tax exemption u/s 80U

Tax deductions u/s 80U is available to an assessee, if he/she is a person with disability. The benefits will be identical to that of Section 80DD of the Income Tax Act as mentioned above.

Tax exemption u/s 80DDB

An assessee may avail tax deductions up to Rs 40,000 u/s 80DDB on the basis of a prescription from an oncologist, a urologist, nephrologist, a haematologist, an immunologist or such other specialist, as mentioned in Rule 11DD specifying that the assessee or his/her dependent is/are suffering from any of the following diseases or ailments as specified in the rules 11DD (1):

(i) Neurological Diseases where the disability level has been certified to be of 40 per cent and above,— (a) Dementia; (b) Dystonia Musculorum Deformans; (c) Motor Neuron Disease; (d) Ataxia; (e) Chorea; (f) Hemiballismus; (g) Aphasia; (h) Parkinsons Disease;
(ii) Malignant Cancers;
(iii) Full Blown Acquired Immuno-Deficiency Syndrome (AIDS);
(iv) Chronic Renal failure;
(v) Hematological disorders — (a) Hemophilia and (b) Thalassaemia.

Further, deduction up to Rs 1 lakh is allowed u/s 80DDB, in case of the person against whom such claim is made is a senior citizen.

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