My wife is a government employee and does not get any medical allowance. Will the Rs15,000 medical reimbursement exemption be available to her?
As per section 17(2) of the Income-tax Act, any sum paid by the employer in respect of any amount incurred by the employee on his medical treatment or treatment of any member of his family is exempt from tax up to Rs15,000. However, if the reimbursement is towards the expenses incurred by the employee on the medical treatment in any hospital maintained by the government or any local authority, or in a hospital approved by the government for the medical treatment of its employees, the entire reimbursement shall be fully tax-free. Also, the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer is not subject to tax.
To claim an exemption for medical expenses up to Rs15,000, as per section 17(2), some conditions should be satisfied:
* The expenses must have been incurred by the employee on his medical treatment or for his family members.
* Such expenses should have been reimbursed by the employer. If the employer does not reimburse such expenses, then they shall never form part of the salary and hence no exemption can be claimed from salary income.
Medical allowance is not the same as reimbursement of expenditure towards medical treatment and the benefit of section 17(2) is available only in case of reimbursement of expenditure by the employer.
Suppose a person wants to avail leave fare assistance (LFA) provided by the company from 20 March 2012 to 6 April 2012. Say, the person received the LFA amount in January 2012 and has incurred the travelling expenses in the same month. Since the period of journey is bifurcated in two financial years—FY12 and FY13—in which year will he be eligible to claim travelling expenses? Can he claim separately for outward journey in FY12 and inward journey in FY13?
As per section 10(5), any sum received or due to the employee in connection with his proceeding to any place in India is exempt from tax subject to the actual expenses incurred by the employee. There is no restriction/condition prescribed in the Act which stipulates that the entire travel should be actually completed in one fiscal. Thus, the exemption for the entire journey should be available in FY12 in which the consideration is received from the employer and also incurred by the employee. If the actual payment as allowance and the period of actually availing such allowance is separated between two fiscal years, then the benefit can be availed in the year when the expense is actually incurred. Also, the employer for the purpose of deducting tax on salary, should insist for boarding passes/used rail tickets to ensure that the amount has been actually incurred towards such travel.
Nitin Baijal, Director, BMR Advisors
Queries and views at firstname.lastname@example.org