Circular Number: 445, dated 31-12-1985 [F. No. 200/177/84-IT(AI)]
Text:
Subject: Valuation of perquisites in the form of reimbursement of medical expenses/ provision of medical facilities by the employer-Clarifications regarding.
1.Under section 17 of the Income-tax Act, 1961, provision of free medical facilities or reimbursement of medical expenses by an employer is treated as a perquisite in the hands of the employee. According to the existing instructions which are effective from the assessment year 1984-85, reimbursement of medical expenses to an employee/provision of medical facilities by an employer to an employee will be taxable only in excess of Rs. 5,000 per annum.
2. Representations have been made to the Board, both on behalf of the employees of the public sector undertakings as well as these working in the private sector, that these employees have been placed in a disadvantageous position by the issue of the above instructions. It has been requested that reimbursement of medical benefits/medical facilities provided by an employer may not be taxed as perquisites.
3. The matter has been carefully considered. The present circular no doubt hits hard these employees of the public and private sectors on whose medical treatment fairly large amounts have been incurred by their employers and who on their own could never have afforded the expenditure on such unavoidable treatment. The present policy also discriminates against the employees of public sector undertakings as also those working in the private sector against Government employees in whose cases the Government permits reimbursement of expenses on medical treatment or provides free medical attention through Central Government Health Services.
4. In view of the above, the Board have decided that reimbursement of medical expenses, such as, operations fees, hospitalisation charges and cost of medicines, tests, etc., actually incurred in India by the employer on an employee, including managers/directors, and his family members will not be treated as perquisite provided this expenditure is incurred on medical treatment in a recognised public hospital in India. The genuineness of the expenditure will, however, be examined by the assessing officer at the time of assessment.
5. The above clarifications will come into force from the year 1985-86, i.e., assessment year 1986-87 and onwards.
6. Hindi version will follow.
(Sd.) P. Saxena,
Secretary, Central Board of Direct Taxes.
