Medical Allowance vs Medical Reimbursement

What’s in a name? That which we call a rose. By any other word would smell as sweet…– William Shakespeare, “Romeo and Juliet”

William Shakespeare might have said this in other sense. A name, in today’s practical life, makes a lot of difference.  To take an example, whether you receive Medical Reimbursement or Medical Allowance from your employer, it will make a huge difference to your tax liability.

Let’s be more legitimate.

You work in an MNC, and your friend too works in a reputed firm. Both of you don’t clearly understand the components of the salary structure.

Frankly speaking, your salary includes basic pay with several allowances like medical, house rent, leave travel, etc. Different tax rules apply to each component, and not all allowances are suitable for tax exemption.

Though medical allowance and medical reimbursement are paid against the medical expenses incurred by an employee; the two are treated differently when it comes to taxation.

Here is how.

Assume that your colleague receives Rs. 15,000 every year as Medical Expenses Reimbursement from his employer.  You are given Medical Expenses Allowance of Rs. 15,000.

As per the Income Tax Act, your colleague escapes from paying any tax on the Medical Expenses Reimbursement if he shows medical bills, but he does not get paid upfront for his expenses by the company.

On the other hand, you are getting paid for your medical expenses up to the limit of the Medical Expenses Allowance, but you are fully liable to pay tax on the Medical Expenses Allowance.

Understanding Medical Allowance and Medical Reimbursement

Considering the above example, we can say that medical allowance in salary is fully taxable while medical reimbursement is tax-free if a bill is submitted against the value. If one is getting a fixed medical allowance as part of one’s monthly salary, the entire amount one receives in the year forms a part of the taxable salary. One doesn’t need to submit any medical bills to the employer to claim the money. In contrast, to claim medical reimbursement, the person needs to submit medical bills to the employer.

Looking At Different Tax Rules

If Income-tax Act is to go by, you find that any reimbursement (up to Rs.15, 000) against medical expenses sanctioned by an employer to an employee in a year is exempt from tax if a bill is submitted against it.

Here, it is important to understand that only the amount for which you have submitted the proper bills or Rs.15, 000, whichever is less, is considered for exemption.

Let’s take an example.

If your medical expenses are Rs.30, 000 your employer reimburses against bills, you can still claim only Rs.15, 000 of the total amount as exempt from tax.

The remaining Rs.15, 000 will be added to your salary, which will further be taxed as per the pertinent income tax slab.

Does Family Treatment Matter?

Yes, medical expenses incurred for dependent family members can be reimbursed.  The family members include dependent children, spouse, and parents. To claim the tax exemption, you need to submit the bills related to:

  • Doctors’ fees
  • Purchase of medicines
  • Medical procedures
  • Medical checkups

Make Medical Reimbursement Process Convenient

No doubt, reimbursement process is cumbersome for HR and Accounts department in any organization. It includes several expenses like medical bills, accommodation expense, travel fare, etc. It eats valuable time for HR and account professionals.  This is where digitization comes in handy.

medical allowanceZeta provides organizations with digital solutions that make reimbursement process for tax exemption an easy task. With it, HR or accountants can collect medical bills digitally, customize the process, verify the bills digitally, and keep records of bills for future reference.

So as the new year has stepped in, let’s plan to go digital by embracing new technology and make the medical reimbursement process for tax benefits an easy-to-do- task.

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