CA Srikant Agarwal
All of us in our day to day life are incurring medical expenses either for ourself or for the dependent family members like spouse, children, parents, brothers and sisters.
In this article we are going to talk about the funding of these medical expenses and income tax treatment of these expenses and reimbursements thereof (if any).
There are primarily three ways of funding your medical expenses:
1) To pay medical expenses out of your own source (It happens in case of non-insured self employed persons or for non-insured salaried people where employer does not provide any medical benefit)
2) Medical reimbursement provided by employer (in case of salaried people only)
3) Medical reimbursement provided by medical insurance company against the mediclaim policies taken (applicable for both salaried as well as non-salaried people).
1) Income Tax treatment in case of self financed medical expenses:
In case of self financed medical expenses (i.e from own source) there is no income to the person who has incurred expenses. Hence the question of chargeability of tax does not arise.
Now the question arises, “Whether such expenses can be treated as allowable expenditure under Income Tax”?
In case of salaried person who is not provided with any medical benefit by his employer and who does not have any medical insurance policy, no income tax benefit of medical expenses will be available to them.
In case of self employed persons, medical expenses incurred on him or his dependent family members would be treated as personal expenses and would not be allowed as business expenditure (as held by Delhi High Court in the case of Shanti Bhushan vs Commissioner Of Income Tax ).
So in case of sole proprietorship and partnership business the medical expenses incurred by the proprietor or partner would be a disallowable expenses. However if they provide medical facilities to their employees then such medical expenses for employees only will be allowable expenditure for Income Tax calculation.
However in the case of a company even the directors are treated as employees of the company since the company has a separate legal entity, so medical expenses incurred by directors and reimbursed by the company would be an allowable expenditure for the company.
2) Income Tax treatment in case of salaried person who are provided with medical benefit:
This is dealt in section 17(2) of the Income Tax Act as perquisite.
The whole amount of expenses incurred by the employer will be allowable expenditure to such employer under Income Tax Act.
In case of salaried person who is provided with medical allowance the whole amount will be taxable.
The medical facility in India provided to the employee or his dependent relative (i,e children, spouse, brothers, sister and parents) by his employer will not be chargeable to tax to the extent of the following:
a) Medical facility provided in a Hospital owned/maintained by the employer.
b) Medical facility provided in a Hospital of Central Government/ State Government/ local authority.
c) Medical facility provided in a Private hospital if it is also recommended by the Government for the treatment of Government employees,
d) Medical facility provided for Specified medical facility (given in rule 3A) in a hospital approved by the Chief Commissioner of Income Tax.
e) Health insurance premium – Medical insurance premium paid on behalf of the employee or reimbursed to the employee by the employer is not chargeable to tax in the hands of the employee.
f) Any other facility in India – Any other expenditure incurred or reimbursed by the employer for providing medical facility in India is not chargeable to tax up to Rs. 15,000 in aggregate per assessment year (fixed medical allowance is fully chargeable to tax).
For medical facility provided outside India the following perquisite will not be chargeable to tax subject to the condition mentioned therein:
|Perquisite not chargeable to tax||Conditions to be satisfied|
|Medical treatment of employee or any member of family of such employee outside India||Expenditure shall be excluded from the perquisite only to the extent permitted by the Reserve Bank of India|
|Cost of stay abroad of the employee or any member of the family for medical treatment and cost of stay of one attendant who accompanies the patient in connection with such treatment||Expenditure shall be excluded from the perquisite only to the extent permitted by the Reserve Bank of India|
|Cost on travel of the employee / any member of his family and one attendant who accompanies the patient in connection with treatment outside India||Expenditure shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the expenditure on travelling, does not exceed Rs. 2,00,000|
3) Income Tax treatment in case of medical insurance reimbursement under mediclaim policy (for both salaried as well as non-salaried people):
Money received through a claim under a medical policy is only a reimbursement of expenditure already incurred by the policyholder. As this does not amount to profit or income for the insured person, this money is not taxable.
Apart from that any amount paid as medical insurance premium will be allowed as deduction u/s 80D to the maximum of Rs 60,000 (detail below) provided payment is made by cheque;
|Type of deduction||For||Senior Citizen||Others|
|Basic deduction||Self, Spouse or dependant children||30,000||20,000|
Hence we can summarise the above provisions as below:
1) In case of self employed person he can not claim any tax benefit of medical expenses incurred on him or his family as it would be treated as his personal expenditure.
2) Any amount received from the Insurance company under a medical policy will not be treated as income of the insured person as it is not a profit or income to the insured person but only a reimbursement.
3) For salaried employees any amount received as medical allowance will be fully taxable but medical reimbursement to the extent of Rs 15,000 per assessment year will not be taxable.
4) For salaried employees if the employer pays medical insurance premium on behalf of the employee or give reimbursement of medical insurance premium to employee then this amount will not be chargeable to tax in the hands of employee.
5) Medical facility provided in Govt hospital / hospital maintained by employer / Govt recommended hospital will not be taxable in hands of employee.
6) Medical facility provided for specified diseases in a Hospital approved by the Chief Commissioner of Income Tax will not be taxable in hands of employee.
7) For medical insurance premium paid the maximum deduction of Rs 60,000 can be availed u/s 80D.