The current limit of medical reimbursement is outdated and unrealistic, and in no way representative of the expenses actually incurred by us on medical treatment.
With the advancement in the fields of technology and medicine, it is almost possible to cure any kind of diseases that may come due to stretched working hours, job stress, environmental factors and other genetic issues. Most of us spend substantial part of our salaries on medical expenses incurred on ourselves, our spouse, parents and children. While the expenses may not be entirely for medical treatment, they are also incurred to prevent getting infected from diseases. Most employers offer medical reimbursement and medical allowances to their employees to enable them to meet their ever-so rising medical expenditures.
Medical reimbursement is an arrangement under which employers reimburse the portion of the expenses incurred by employees towards their health. The Income-Tax Act, 1961 allows an exemption of up to Rs 15,000 per annum on medical reimbursements paid by the employer, on actual submission of bills by the employee. This reimbursement is different from medical allowance, which is a fixed component that employees receive every month as a part of the salary, without submission of any bills and is subject to tax in their hands.
This limit of Rs 15,000 per annum was revised by Finance Act, 1998 with effect from April 1, 1999. Prior to this amendment, the prescribed ceiling under the Act was Rs 10,000 per annum.
Thus, if you incur any amount exceeding Rs 15,000 in a year on self or family’s health, even if the employer reimburses the excess amount, it will still be subject to tax in your hands. Similarly, if you furnish actual bills of health related expenses for less than Rs 15,000 in a year, the balance amount will be subject to tax in your hands. This limit prescribed under the Act is not commensurate with the actual expenditure that we incur for our health in today’s time.
While there have been path-breaking studies in the field of medicine, it has also increased the medical costs for treatment. What was affordable two decades ago is now a luxury. With the increase in inflation rate every year and medical treatments becoming expensive by the day, the question that arises is whether this tax-free medical reimbursement provided for under the Act is enough to meet our health-related expenses?
Most of us insure our lives and health by way of obtaining life insurance and health insurance respectively. The insurance premiums paid under these policies are separately allowed as a deduction from the income for tax purposes. A health insurance policy premium is different from medical reimbursement. While the former is specific to insure the health of an individual at the time of hospitalization, the latter may be reimbursed by the employer for hospitalization (where there is no health insurance policy in force) or for meeting the medical expenses of day-to-day life. Where an individual has a health insurance in place, the policy may not cover all the expenses required to be incurred in the case of hospitalization.
Let’s understand the average annual expenditure on health incurred by a family of four – two adults and two kids. The per night tariff for an air-conditioned room in an average private hospital is around Rs 5,000. Add to it the cost of the requisite testing, medication, food for the attendant and applicable taxes. The bill races up to Rs 15,000 for two nights easily. If the patient does not have health insurance, the entire tax-free amount provided for under the Act is spent within a span of two nights.
In the same example, even if the patient has availed health insurance, it may or may not cover the ailment that the patient is suffering from, or the hospital may not be on the panel of the insurance provider, or it may not cover certain medication. Since this limit is also for procuring medicines for even common ailments, it is certainly not enough to cover all the medical expenses incurred during a full year.
This ceiling would have been logical in the year when it was fixed, i.e. 1999, but since it has not been reviewed for almost twenty years, it has gradually lost its relevance. Practically, it covers nothing since expenses actually incurred by most of the employees for himself or family is way beyond. Wherever a monetary limit is fixed, it should be realistic and subject to revision from time-to-time or it should be linked with some parameters like a percentage of the threshold limit of income exempt from tax so that it is automatically revised with every revision in the amount of income exempt from tax.
This limit is outdated and unrealistic and in no way representative of the expenses actually incurred by us on medical treatment, especially in private hospitals. With the upcoming Budget 2018, one can only hope that the Finance Minister considers revising this limit and a limit which is closer to reality is fixed.
Source by financialexpress..Share: