Hi,
Is Medical Re-imbursement considered part of your gross salary?
I understand that Rs.15000.00 is the ceiling per annum.
Should each month's medical bill amount to Rs. 1250 or can an employee show bills adding up to Rs. 15000/- for the financial year, irrespective of how much she spends each month? (Currently, Rs. 1250 is getting deducted each month from her salary and she is confident she can show expenses for Rs. 15000).
In May 2007, this employee incurred expenses of Rs. 7000. In June and July, she had none. Is it alright that she did not draw 1250/- for these 2 months, where she had no expense?
Please respond. Thanks in advance.
From India, Bangalore
2Is Medical Re-imbursement considered part of your gross salary?
I understand that Rs.15000.00 is the ceiling per annum.
Should each month's medical bill amount to Rs. 1250 or can an employee show bills adding up to Rs. 15000/- for the financial year, irrespective of how much she spends each month? (Currently, Rs. 1250 is getting deducted each month from her salary and she is confident she can show expenses for Rs. 15000).
In May 2007, this employee incurred expenses of Rs. 7000. In June and July, she had none. Is it alright that she did not draw 1250/- for these 2 months, where she had no expense?
Please respond. Thanks in advance.
From India, Bangalore
Dear BHR,
There are to issues which are absolutely different which I feel you are mixing up:
1) Medical reimbursement
2) Tax Exemption against Medical reimbursement.
1) Medical Reimbursement:
A Company can pay any amount towards Medical Reimbursement or as Medical Allowance and there is no bar to it. This forms a part of Salary.
2) Tax Exemption:
An individual is entitled to tax exemption on the amount of actual expenditure incurred on Medical Grounds for him and his family subject to a limit of Rs. 15,000/- in each Financial Year. This unclaimed amount cannot be carried forward. The tax benefit is given on production of Medical Bills. In absence of bill the amount can be paid after deducting TDS if applicable.
So, the monthly limit of Rs. 1250/- is irrelevant since the amount is on annual basis and the person should be reimbursed on production of actual bill upto a limit of Rs. 15,000/-. Hence, a person can use the whole amount of Rs. 15,000/- on the first month itself and avail tax benefits and any further Medical reimbursement will not qaulify for any further tax benefit for that Financial Year.
Regards,
SC
From India, Thane
There are to issues which are absolutely different which I feel you are mixing up:
1) Medical reimbursement
2) Tax Exemption against Medical reimbursement.
1) Medical Reimbursement:
A Company can pay any amount towards Medical Reimbursement or as Medical Allowance and there is no bar to it. This forms a part of Salary.
2) Tax Exemption:
An individual is entitled to tax exemption on the amount of actual expenditure incurred on Medical Grounds for him and his family subject to a limit of Rs. 15,000/- in each Financial Year. This unclaimed amount cannot be carried forward. The tax benefit is given on production of Medical Bills. In absence of bill the amount can be paid after deducting TDS if applicable.
So, the monthly limit of Rs. 1250/- is irrelevant since the amount is on annual basis and the person should be reimbursed on production of actual bill upto a limit of Rs. 15,000/-. Hence, a person can use the whole amount of Rs. 15,000/- on the first month itself and avail tax benefits and any further Medical reimbursement will not qaulify for any further tax benefit for that Financial Year.
Regards,
SC
From India, Thane
Hi,
Regarding the medical allowance for tax exemption of Rs. 1250/- This component is a part of the gross. employee has to produce the medical bills for Rs.1250/- pm . it depends on the organization whether they collect the bills on monthly bases, quarterly or annually. if it is monthly then you need to furnish the bills and if you don't then, this amount in not paid in that particular month. it gets carried forward. at the end of the financial year if you are not able to produce the bills the payroll adds the bal. amount to the taxable component .
It depends on you if you have a consolidated bill of Rs.15000/- at the beginning of the financial year then you can submit the bill at the end of the financial year because this is a monthly component and it cannot be paid in advance. or you can check with your payroll guys if this original bill of Rs.15000/- is submitted in the month of April ( you will get Rs.1250/-pm not 15000/-in one month) and for the rest of the months you attach the photo copy of the bill mentioning that the original bill in submitted in the month of April so that the payroll can track out the original bills for audit purpose.
Hope this is clear.
Thanks,
Uttama
From India, Mumbai
Regarding the medical allowance for tax exemption of Rs. 1250/- This component is a part of the gross. employee has to produce the medical bills for Rs.1250/- pm . it depends on the organization whether they collect the bills on monthly bases, quarterly or annually. if it is monthly then you need to furnish the bills and if you don't then, this amount in not paid in that particular month. it gets carried forward. at the end of the financial year if you are not able to produce the bills the payroll adds the bal. amount to the taxable component .
It depends on you if you have a consolidated bill of Rs.15000/- at the beginning of the financial year then you can submit the bill at the end of the financial year because this is a monthly component and it cannot be paid in advance. or you can check with your payroll guys if this original bill of Rs.15000/- is submitted in the month of April ( you will get Rs.1250/-pm not 15000/-in one month) and for the rest of the months you attach the photo copy of the bill mentioning that the original bill in submitted in the month of April so that the payroll can track out the original bills for audit purpose.
Hope this is clear.
Thanks,
Uttama
From India, Mumbai
Thank you SC and Uttama for your answers.
To know if I fully understood your points, can I illustrate the following salary breakup for a person who is availing this benefit? For a salary of 20,000 a month:
Basic -8000
HRA-6000
Conv - 800
Med allowance-1250
Special Allowance -3950
Total gross paid - 18750 (becoz he prefers to produce his bills at the year end)
Can this be shown as his salary structure? Please let me know at the earliest.
From India, Bangalore
To know if I fully understood your points, can I illustrate the following salary breakup for a person who is availing this benefit? For a salary of 20,000 a month:
Basic -8000
HRA-6000
Conv - 800
Med allowance-1250
Special Allowance -3950
Total gross paid - 18750 (becoz he prefers to produce his bills at the year end)
Can this be shown as his salary structure? Please let me know at the earliest.
From India, Bangalore
Dear BHR,
Why do you need to show Medical Allowance monthly if you are not paying it?
You cannot stop payment of any allowance on grounds of non submission of documents to avail tax exemptions. It is upto the employee to claim the benefits. The same can only be done in case of reimbursement.
Again if you term it as reimbursement the same can only be paid on submission of documents.
If you are giving it monthly tax should be deducted. The employee can claim tax refund directly from Income Tax Department by submitting the medical bills along with the annual return.
What we follow is reimbursement on a quarterly basis on submission of actual bills. Our Employees are free to submit it either quarterly, half yearly or annual basis. Let me explain:
Suppose the quarters are :April(I), July(II), October(III), January(IV):
The employee can claim in any quarter and in any frequency subjected to the limit of Rs. 15,000/- i.e
They can claim it once i.e I or II or III or IV
or I and IV
or II and IV
or I and III
or I and II
or III and IV
or II and III
The balance amount if any is paid back to the employee at the end of the Financial Year subjected to TDS.
Revert if required.
Regards,
SC
From India, Thane
Why do you need to show Medical Allowance monthly if you are not paying it?
You cannot stop payment of any allowance on grounds of non submission of documents to avail tax exemptions. It is upto the employee to claim the benefits. The same can only be done in case of reimbursement.
Again if you term it as reimbursement the same can only be paid on submission of documents.
If you are giving it monthly tax should be deducted. The employee can claim tax refund directly from Income Tax Department by submitting the medical bills along with the annual return.
What we follow is reimbursement on a quarterly basis on submission of actual bills. Our Employees are free to submit it either quarterly, half yearly or annual basis. Let me explain:
Suppose the quarters are :April(I), July(II), October(III), January(IV):
The employee can claim in any quarter and in any frequency subjected to the limit of Rs. 15,000/- i.e
They can claim it once i.e I or II or III or IV
or I and IV
or II and IV
or I and III
or I and II
or III and IV
or II and III
The balance amount if any is paid back to the employee at the end of the Financial Year subjected to TDS.
Revert if required.
Regards,
SC
From India, Thane
Thank you SC. So, for a person who is availing this benefit on an annual basis will his monthly gross salary be 18750 (20,000-1250) with no mention of the 1250 on any monthly salary head, except in March, where he gets the 15000 as medical re-imbursement?
If yes, his basic salary (which is 40% of gross), will be 40% of 20,000?
Thank you in advance for your time and support.
Regards,
BHR
From India, Bangalore
If yes, his basic salary (which is 40% of gross), will be 40% of 20,000?
Thank you in advance for your time and support.
Regards,
BHR
From India, Bangalore
Dear BHR,
Kindly refer to my first reply.
What I have described is how to let your employees avail tax benefits given by Income Tax Act in regard to Medical Expenditure and nothing less and nothing more.
As for your CTC and Salary, the Company is free to determine as it deemed fit keeping in mind the current market practices and statutes if any.
Lastly there is no such law which states the Basic should be 40% of Gross Pay. CTC has no legal importance and binding. As I have stated in one of my previous post in this site that CTC is purely dependant on the Company and the Management is free to include and exclude what it want to include or exclude because it has no importance as per law.
Regards,
SC
From India, Thane
Kindly refer to my first reply.
What I have described is how to let your employees avail tax benefits given by Income Tax Act in regard to Medical Expenditure and nothing less and nothing more.
As for your CTC and Salary, the Company is free to determine as it deemed fit keeping in mind the current market practices and statutes if any.
Lastly there is no such law which states the Basic should be 40% of Gross Pay. CTC has no legal importance and binding. As I have stated in one of my previous post in this site that CTC is purely dependant on the Company and the Management is free to include and exclude what it want to include or exclude because it has no importance as per law.
Regards,
SC
From India, Thane
Greetings Swastik,
Thank you for your valuable inputs on medical re-imbursements. I have 2 situations in my office. Please let me know if what we are doing is correct.
1. One employee draws Rs. 1250 less every month for 12 months (apr to mar). This amount is currently part of his gross salary, but since he is not drawing it, we show his gross to be less by Rs1250 every month. At the end of the year, he produces medical bills for Rs.15000. We pay him Rs.15000 additionally in the month of March as part of salary. Is this correct? While doing his income tax calculation, we show that this 15000Rs is exempted from taxable income.
2. Another employee is paid his gross salary in full each month. At the end of the year, (March), he submits bills for Rs.10000. This 10000 is exempt from his taxable income. Were he to produce no bills, this 10000 would be offered for taxation.
Are we following the right practices? Since medical reimbursement attracts fringe benefit tax, this benefit is offered only to senior members of the organization. The salary structure does not specify medical reimbursement. Please comment.
Thank you for your time.
Regards, BHR
From India, Bangalore
Thank you for your valuable inputs on medical re-imbursements. I have 2 situations in my office. Please let me know if what we are doing is correct.
1. One employee draws Rs. 1250 less every month for 12 months (apr to mar). This amount is currently part of his gross salary, but since he is not drawing it, we show his gross to be less by Rs1250 every month. At the end of the year, he produces medical bills for Rs.15000. We pay him Rs.15000 additionally in the month of March as part of salary. Is this correct? While doing his income tax calculation, we show that this 15000Rs is exempted from taxable income.
2. Another employee is paid his gross salary in full each month. At the end of the year, (March), he submits bills for Rs.10000. This 10000 is exempt from his taxable income. Were he to produce no bills, this 10000 would be offered for taxation.
Are we following the right practices? Since medical reimbursement attracts fringe benefit tax, this benefit is offered only to senior members of the organization. The salary structure does not specify medical reimbursement. Please comment.
Thank you for your time.
Regards, BHR
From India, Bangalore
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