29 May 2017
Assessee has received medical reimbursement from his old employer after his retirement amounting to Rs.1,00,000- What is the taxable reimbursement that can be taken? Whether Rs.15,000- is applicable for retired employees also?
30 May 2017
The Rs.1 lakh and odd pertains to hospitalisation expenses, which he has spent and submitted to his old employer and subesequently got reimbursement. Is it taxable in the hands of the assessee? This reimbursement is made based on the employer's company policy.
Kindly mention if it is exempt or otherwise with section reference, if any.
03 August 2024
When it comes to medical reimbursements received after retirement, the taxability of such reimbursements depends on the provisions of the Income Tax Act applicable to the specific financial year in which the reimbursement is received. Let's clarify the situation based on the relevant provisions.
### Medical Reimbursement After Retirement
**1. **Exemption for Medical Reimbursement:**
- **Pre-Finance Act, 2018 (For FYs Before 2018-19):** Before the Finance Act, 2018, medical reimbursement was exempt up to ₹15,000 per annum under **Section 10(14)** of the Income Tax Act. This exemption was applicable to employees, and it covered medical expenses incurred by the employee and reimbursed by the employer.
- **Post-Finance Act, 2018 (For FYs 2018-19 Onwards):** The Finance Act, 2018, replaced the exemption for medical reimbursement with a standard deduction. For these years, the standard deduction of ₹40,000 (later increased to ₹50,000) is applicable, which covers medical reimbursement along with other allowances.
**2. **Reimbursement After Retirement:**
- **Taxability:** If the medical reimbursement is received after retirement, it generally falls outside the scope of the exemption provisions under Section 10(14) or the standard deduction applicable to active employees.
- **Pre-Finance Act, 2018:** If the reimbursement was made based on the employer's policy but received after retirement, the amount over ₹15,000 is taxable in the hands of the retiree, as the ₹15,000 exemption is generally applicable only for the financial year in which the reimbursement was made.
- **Post-Finance Act, 2018:** For retirees, the standard deduction would not cover reimbursements received post-retirement. Therefore, such reimbursements would be fully taxable.
**3. **Tax Treatment:**
- **Taxable Amount:** For a reimbursement of ₹1,00,000 received after retirement, the entire amount would be taxable in the hands of the retiree, as the exemption limit of ₹15,000 or standard deduction does not apply to retirees for post-retirement reimbursements.
**4. **Relevant Sections:**
- **Section 10(14):** Provided exemptions for medical reimbursement up to ₹15,000 for active employees before FY 2018-19. - **Section 16(i):** Provides a standard deduction of ₹40,000 (later ₹50,000) for employees, which includes medical reimbursements but is not applicable post-retirement.
**5. **Employer's Policy:**
- The reimbursement made based on the employer’s policy does not alter the tax treatment if it falls outside the scope of exemptions and standard deductions applicable to active employment.
### Summary:
- **Exemption Limit (Pre-Finance Act, 2018):** The ₹15,000 exemption limit under Section 10(14) does not apply to reimbursements received after retirement. - **Taxability:** The full amount of ₹1,00,000 received as medical reimbursement after retirement is taxable in the hands of the retiree. - **Current Standard Deduction (Post-Finance Act, 2018):** The standard deduction of ₹40,000 (later ₹50,000) applies only to employees actively working and does not cover reimbursements after retirement.
For precise tax treatment and advice based on your specific situation, consulting a tax professional or chartered accountant is recommended. They can provide tailored guidance based on the most current tax laws and your individual circumstances.
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