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What is Medical Allowance in Salary? Everything You Need to Know

Employers offer many health and related advantages to their employees to cover fees incurred on them, their parents, children, or brothers or sisters. These benefits include medical allowance and Reimbursement, etc.

Subsequently, individuals can also avail of medical allowance exemption under the Income Tax Act. With those health advantages, salaried individuals can easily control medical costs incurred in any financial year. Read more to know about. 

What is Medical Allowance in Salary?

Medical allowances are allowances that are paid to employees by the company, no matter whether they submit their medical bills or not. On the other hand, medical reimbursements entail reimbursements made to employees against unique medical bills they post.

To benefit from tax incentives, employees have to post monthly bills for medical Reimbursement equal to the incurred costs. Under the Income Tax Act, this allowance isn’t always considered an allowance that qualifies for exemption. As a result, medical allowance is completely taxable. However, employees can declare a tax advantage of as much as Rs. 15,000 below medical Reimbursement by offering valid bills or helping files.

Also Read:- What is Salary Slip? | What is Travel Allowance in Salary? | What is Housing Rent Allowance?

Types of Medical Allowances

Based on the company’s nature and coverage, there are three types of medical allowances, fixed medical allowances, Mediclaim policy, and medical reimbursement.

  • Fixed Medical Allowance: This refers to an amount paid by employers to employees as a part of their salary. Irrespective of whether or not this amount is spent on medical costs or not, it’s taxable. For example, if an employee’s salary consists of a medical allowance of Rs. 5,000, they’ll be taxed if their total salary falls under the taxable salary bracket for that financial year.
  • Mediclaim Policy: Employers regularly provide a Mediclaim policy only for the employee. Employers can declare this amount in their company return.
  • Medical Reimbursement: In this situation, employees are required to submit their medical bills, consisting of the medicine costs, to their company. Employers then reimburse the claims after verifying the medical bills.

How is Medical Allowance Taxed?

Fixed medical allowance stays taxable for any employee even though receiving treatment for ailments includes expenses. This set Reimbursement is taxable monthly under “Income from other assets.” Central government pensioners in India who live in the CGHS region are allowed to receive a set payment of 500 INR, which is also taxable.

Medical reimbursements are exempt from taxation up to Rs. 15,000, although the money was paid before the costs were incurred. If an employee gets a payment rather than Reimbursement for medical services acquired, it will be considered a part of the employee’s taxable salary. On the other hand, a set medical allowance isn’t included in the exemption policy, so it is taxed. Therefore, it is suggested that employees choose medical Reimbursement over filing a fixed medical allowance.

Medical Allowance and Medical Reimbursement

A medical allowance is a defined amount given by a company to the employee irrespective of whether or not the person receives medical treatment and submits bills to give proof of their expenses or not Now, medical Reimbursement occurs simplest while the organization reimburses the employee for the real costs spent. This Reimbursement is available as soon as the employee submits medical bills, which are then verified by the company to ensure that the payments are legal. Furthermore, a charge of medical costs via employers to salaried employees is exempt from taxation.

Eligibility to Claim Medical Expenditure

To claim medical allowance or reimbursements, here are the eligibilities that employees should meet

  • The medical allowance should be covered in the employee’s salary package.
  • You must submit the real medical bills and receipts to your company as proof of your expenses.
  • Medical allowance can only be claimed for yourself or for family members, along with spouse, children, parents and siblings.
  • The limit for medical allowance is set up to Rs. 15,000 per year.

How to Calculate Medical Allowance

The maximum tax benefit which can be claimed by an employee for medical expenditure is Rs. 15,000.

For example:-

  • Kannan, a 30-year-old engineer is eligible to get medical reimbursement of Rs 30,000.
  • Kannan has to provide medical bills worth Rs. 30,000 to claim reimbursements.
  • The tax benefits might be Rs. 15,000, even supposing he submits bills of Rs. 30,000.

How to Claim Your Medical Allowance?

Employees need to provide the following statistics to their employers to acquire medical benefits:

  • Medical costs: Employees need to save files of all medical fees paid for the year. The employees or a member of their family need to be mentioned on the invoices.
  •  Medical certification: Employees need to get a medical file from the medical expert or medical facility where the individuals will get treatment. The certificates need to encompass the patient’s name, the date of hospital treatment, the type of disease, and the cost of the hospital therapy.
  • Claim form: Typically, employers supply employees with a declaration form to complete and send alongside their medical costs and medical certification.

The company will take care of the request for reimbursements and switch the money following the company’s coverage as soon as the employees submit all the essential documentation.

Medical Allowance Exemption

While medical allowance is completely taxable, no tax on medical Reimbursement is possessed up to Rs. 15,000. The exemption by medical costs must be granted even though the fee preceded the incurrence of expenditure. If an employee is given an allowance in preference to Reimbursement for medical treatment overseas, it will be considered part of the taxable factor of the employee’s salary.

Conclusion

This allowance is that an employer will pay its employees, irrespective of whether they’ve submitted the medical bills to claim those costs or not. Employers offer those allowances every month. Employers provide this advantage to ensure the employees’ health and help them meet medical expenses during the economic year.

Frequently Asked Questions

1. Is Medical Allowance Part of the income?

Yes, it is part of the salary. Medical allowance is the amount that an employee gets every month with his pay and falls under the taxable amount.

2. What is the maximum limit of Medical Allowance?

The maximum sum that an employee can also request an allowance for is INR 15,000.

3. Who can claim medical allowance?

Employees who get a medical allowance from their organization as part of their salary package may also claim it in India. However, based on the organization’s policy, the requirements for receiving an allowance may also be imposed.

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