Article Details

Medical reimbursement for treatment in approved private hospital is tax free

TAX TALK-14.03.2016-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA

Chartered Accountant

Medical reimbursement for treatment in approved private hospital is tax free

Query 1]
1. Whether medical reimbursement received by employee is taxable or not? If tax free, do we need to submit the bills for the same or keep the records with us for claiming the deduction? Whether medical allowance is same as medical reimbursement? [LK, Raipur]
2. A member of our family underwent a surgery at Hyderabad. The hospital expenses were Rs. 4.30 Lacs. Also the patient was uninsured. Patients' spouse is a government employee and fall under 30% tax slab. Under Government scheme the spouse applied for medical reimbursement. If the above said amount is reimbursed, then is that amount taxable? [aman.agnihotri333@gmail.com]
Opinion:
Income Tax treatment in case of salaried person who are provided with medical benefit:
“What's in a name? That which we call a rose by any other name would smell as sweet” by William Shakespeare may not be true when it comes to income Tax Act-1961. Everything is there in the name. Tax implication of medical benefit derived by the employee from employer would depend upon the name. Though the word “Medical allowance” & “medical reimbursement” are used interchangeably, they are two different words with different tax treatment under the Income law. “Medical allowance’ is normally used to covey a fixed allowance offered on monthly basis to employees irrespective of expenditure actually incurred whereas “Medical reimbursement” is a payment made against actual medical expenses incurred. [The tax treatment of medical expenses of employee is covered 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].

1^st Part of the Query- Fixed Medical allowance or reimbursement:

Fixed medical allowance is taxable whereas medical reimbursement is tax free subject to a maximum sum of Rs. 15,000/- per annum. If employer reimburse more than Rs.15,000/- in a year against medical bills, amount exceeding Rs.15,000/- would be taxable in the hands of the employee. Further, the exemption is available not only against an expense incurred for his own medical treatment but also for the treatment of (a) spouse (b) children & (c) dependent parents/brothers & sisters of the employee.
In addition to tax free reimbursement of medical expense up to Rs. 15,000/- as explained above, following are also considered as tax free perquisite & no income tax in payable in such cases:
The value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer.
Medical reimbursement provided by an employer to an employee for the medical treatment of self or family members in any hospital maintained by the Government or Local authority or in a hospital approved by the Government for treatment of its employees.
Medical reimbursement provided by an employer to an employee for medical treatment of self or any of his family member’s in respect of prescribed disease or ailment as prescribed in Rule 3A of the Income Tax Rules in any hospital prescribed the Chief Commissioner of Income Tax. However, in such case, an employee has to obtain a certificate from the hospital specifying the disease or ailment for which medical treatment was required and the receipt for the amount paid to the hospital.
Any portion of the Insurance premium paid by the employer for insurance and health of the employee under scheme approved the General Insurance Company.
Any reimbursement by the employer of any insurance premium paid by the employee for an insurance for his health or the health of any member of his family under a scheme approved by the General Insurance Corporation of India for the purpose of Section 80D.

2^nd Part of the Query: Tax implication in case of Medical Treatment at a Private Hospital:

An employee sometimes get the treatment at a private hospital and not necessarily at a hospital maintained by the Government or any local authority, which may not be approved for the medical treatment of employees of the Government. Such a hospital is normally treated as a private hospital. If Private Hospital is approved by the Chief Commissioner of Income Tax, having regard to the prescribed guidelines for the purposes of medical treatment, any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family in respect of prescribed disease/ailment would be totally exempt from income tax. Hence, proper planning should be adopted for getting an employee or a member of his family treated at a private hospital which is approved by the Chief Commissioner. Employee should properly keep the documents from the hospital specifying the disease and the amount paid to the hospital. Diseases prescribed by Rule 3A are:

(a)		cancer;
(b)		tuberculosis;
(c)		acquired immunity deficiency syndrome;
(d)		disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system, central nervous system, urinary system, liver, gall bladder, digestive system, endocrine glands or the skin, requiring surgical operation;
(e)		ailment or disease of the eye, ear, nose or throat, requiring surgical operation;
(f)		fracture in any part of the skeletal system or dislocation of vertebrae requiring surgical operation or orthopaedic treatment;
(g)		gynaecological or obstetric ailment or disease requiring surgical operation, caesarean operation or laperoscopic intervention;
(h)		ailment or disease of the organs mentioned at (d), requiring medical treatment in a hospital for at least three continuous days;
(i)		gynaecological or obstetric ailment or disease requiring medical treatment in a hospital for at least three continuous days;
(j)		burn injuries requiring medical treatment in a hospital for at least three continuous days;
(k)		mental disorder - neurotic or psychotic - requiring medical treatment in a hospital for at least three continuous days;
(l)		drug addiction requiring medical treatment in a hospital for at least seven continuous days;
(m)		anaphylectic shocks including insulin shocks, drug reactions and other allergic manifestations requiring medical treatment in a hospital for at least three continuous days.

Query 2]
I had some Queries related to capital gain tax implications. Next month, I will be getting Rs. 30 lacs on capital gain for selling out my father in laws house at Indore. My spouse and my sister in law both are getting Rs. 30 lacs each. So, I want to know about tax implications and how to save tax or invest that amount so that I can get less tax amount/exemption? What are the tax saving options do I have, please suggest me.
[manav.patel1988@yahoo.com]
Opinion:
1.      Tax saving Options against profit arising from sale of House property:
An Individual/HUF can save Long Term Capital Gain (LTCG) tax from sale of house property either u/s 54 or U/s 54EC, as under:
i) Exemption Under Section 54:
For exemption u/s 54, individual have to invests the amount of LTCG for purchase or construction of another residential house property within a prescribed time period. The prescribed time periods are as under:
a] For purchase:
One year before or two years from the date of sale.
b] For Constructions:
Three years from the date of sale.
ii) Exemption Under Section 54EC:
To save tax u/s 54EC, taxpayers have to invest the amount of LTCG in the Specified bonds issued by Rural Electrification Corporation (REC) or National Highway Authority of India ( NHAI) within a period of 6 months from the date of sale.
2.      It appears that your father in law would be selling the property and out of the sale proceeds, he would be gifting the amount of Rs. 30 Lacs each to her two daughters. In such scenario, the father would be liable for the capital gain tax arising out of the sale proceeds of his Indore House property. The amount of Rs. 30 Lacs received by the each daughter from their father would be totally tax free. Gifted amount would not be taxable, neither in the hands of the father nor in the hands of the daughter.
3.      There are two options that could be explored for gifting the amount:
a. Let the father sale the house property and pay the capital gain tax or opt for the tax saving options as mentioned above. Balance amount, if any, can be gifted to the daughters as mentioned in the query.
b. Let the father gifts the house itself or share in the house to the daughters and thereafter the daughter can sell the house property. By opting this route, the daughter would be either required to pay the capital gain tax as mentioned in (a) above or they can choose to save tax by investing the sale proceeds in the specified mode as mentioned above.

[The author is a practicing Chartered Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
or email it at nareshjakhotia@ssrpn.com]