Skip to main content

Medical Allowance vs Medical Reimbursement

 Medical reimbursement up to Rs 15,000 a year is tax exempt whilst this is not the case for medical allowance
 
 Many employees do not clearly understand the components of their salary structure and the tax implications of each. Typically, salary is the combination of basic pay along with various allowances such as house rent, medical, leave travel and others. Different tax rules apply to each component. Not all allowances qualify for tax exemption. And those that do may have an upper limit till which tax exemption is allowed. The tax implication can also differ based on the nature of payment to the employee.
 
 

For instance, both medical allowance and medical reimbursement are meant to be paid against the medical expenses incurred by an employee. However, the two are treated differently when it comes to taxation. Here is how.

 

What is the difference?
If you get a fixed medical allowance as part of your monthly salary, the whole amount you receive in the year will form a part of your taxable salary. In case of medical allowance, the employee does not have to submit any medical bills to the employer to claim her money. While medical allowance is fully taxable, medical reimbursement is tax-free to a certain extent.

What are the different tax rules?
Section 17(2) of the Income-tax Act, 1961, provides that any reimbursement against medical expenses to an employee by an employer up to R15,000 in a year is exempt from tax, irrespective of whether it has been claimed in part or full. However, only the amount for which proper bills are submitted or R15,000, whichever is less, will be considered for exemption.

 

Let's take an example. If A incurs R25,000 as medical expenses, which her employer reimburses against bills, she will still only be able to claim R15,000 of the total amount as exempt from tax. The remaining R10,000 will get added to her salary and taxed according to the applicable income tax slab. Similarly, if she is entitled to claim R25,000 as medical reimbursement but claims only up toR5,000 during the year, she can get tax exemption only on theR5,000; the remaining R20,000 will be taxed.

 

An employee can claim the reimbursement not only for medical expenses incurred for herself but also for spouse, and dependent children and parents. Bills related to purchase of medicines, medical checkups, doctors' fees or medical procedures can be submitted to claim the tax exemption. Moreover, there are no restrictions in terms of the medical system used; it can be allopathy, homeopathy or any other form of treatment. However, there is no upper limit for exemption in the case of reimbursements for medical expenditure incurred at a hospital or clinic maintained by the employer itself, or maintained by the government, local authority or a hospital approved by the government for its employees. Further, reimbursements of medical expenditure incurred at a hospital approved by the chief commissioner of income tax is entirely tax exempt.

-----------------------------------------------
Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds

Top 10 Tax Saver Mutual Funds to invest in India for 2016

Best 10 ELSS Mutual Funds in india for 2016

1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

3. Franklin India TaxShield

4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

7. DSP BlackRock Tax Saver Fund

8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

10. Birla Sun Life Tax Plan

Invest in Best Performing 2016 Tax Saver Mutual Funds Online

Invest Online

Download Application Forms

For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

---------------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

PrajnaCapital [at] Gmail [dot] Com

OR

Leave a missed Call on 94 8300 8300

-----------------------------------------------

Popular posts from this blog

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

What are the factors affect the changes in Interest Rate of Fixed Deposits?

  What are the factors affect the changes in rate of Fixed Deposits? Fixed Deposits are now considered to be a very old fashioned method of saving, but still attract many investors since they have guaranteed returns at the end of the tenure of the investment at a decent interest rate. There are various factors that affect the rates of interest for a Fixed Deposit. Policies of the Reserve Bank of India   - The several norms and restrictions posed by the Reserve Bank of India , in order to gain optimum control over credit and inflow and outflow of fund throughout the country. The repo rate changes, cash reserve ration tends to change and these changes affect the banking products like Fixed Deposits, loans etc. Recession   - When unemployment in a country crosses the benchmark set Recession hits, and slowly the country faces an economic slow movement, affecting the purchasing power of the people in the country, forcing the Reserve Bank of India to release more funds in the financial marke...

Capital Protection Oriented Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Capital Protection Oriented Funds   Erosion of capital is one of the key concerns for investors wanting to invest in equity mutual funds. To address this concern, asset management companies have launched Capital Protection Oriented Funds (CPOFs). What are CPOFs? CPOFs are generally three to five-year, closed-ended funds where 70-80% of the portfolio is invested in fixed income securities, which mature on or before the scheme's tenure. The investment in fixed income securities grows to 100% at the end of the tenure, providing the investor with capital protection. The remaining portion (20-30%) is used to take exposure to equity, which provides the upside. Exposure to equities is either by directly buying equity stocks (plain vanilla CPOFs) or by b...

Mutual Fund Review: ING Dividend Yield

  ING Dividend Yield's small assets enable the fund manager to churn in impressive returns… Strategy The aim of the fund is to invest in stocks which offer a high dividend yield. This fund deploys a value based strategy which aims to gain from investing in fundamentally strong and free cash flow generating businesses. The scheme focuses not only on growth but also on the cash generated by the business, which mostly leads to stable returns even in volatile markets. This fund has a low volatility because of its investment in high yielding stocks. The scheme tries to include stocks that yield dividend above the dividend yield of the Nifty and stocks with liquidity, which throws up a universe of 150 stocks.   Our View Launched in October 2005, this fund invests at least 65 per cent of its assets in high dividend yield stocks. The fund has consistently maintained a mix of stocks across varying market capitalisation, with a higher tilt to mid caps compared to small caps. Howev...

SBI Small Cap Fund

SBI Small Cap Fund scheme seeks to provide investors with opportunities for long-term growth in capital along with the liquidity of an open-ended scheme by investing predominantly in a well diversified basket of equity stocks of small cap companies. SBI Small Cap Fund has widened its margin of outperformance relative to its category and benchmark in the last one year, earning itself a five-star rating. The fund shows a hefty 18 percentage-point outperformance relative to its peers in the last one year, 5 percentage points over three years and 4 percentage points over five years. Needless to say, it has also outpaced its benchmark to deliver convincing five-year annualised returns of 37 per cent. A believer in the credo that a small market cap does not reflect business quality, the fund looks for five attributes in the stocks it buys: competitive advantage, return on capital, growth, management and valuation. SBI Small Cap Fund is among the few in this space to remain at quite a man...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now