The Draft Income-tax Rules, 2026 introduce detailed compliance norms under Rule 18 governing exemption of medical benefits from perquisite valuation under Section 17(2)(b)(ii) of the Income-tax Act. The rule lays down strict approval criteria for hospitals treating prescribed diseases, ensuring that only qualified and well-equipped medical institutions qualify for tax exemption benefits.
This move is aimed at standardizing hospital infrastructure, staffing, and patient care documentation before granting tax relief to employees receiving medical reimbursements for specified ailments.
Approval Conditions for Hospitals (Other Than Indian Systems & Homeopathy)
For hospitals (excluding Indian system of medicine and homeopathic institutions), the Principal Chief Commissioner or Chief Commissioner must ensure the following before granting approval:
Infrastructure & Compliance Requirements
- Registration with the local authority
- Building compliance with municipal bye-laws
- Proper ventilation, lighting, hygiene and sanitation
- Minimum 10 iron spring beds for patients
- At least one fully equipped operation theatre (minimum 180 sq. ft.) with separate sterilisation room
- Labour room (minimum 180 sq. ft.) where maternity services are provided
- Aseptic conditions in operation and labour rooms
- Dedicated duty room for nursing staff
- Adequate medicine and equipment storage space
- Safe drinking water supply
- Isolation arrangements for infectious patients
Mandatory Medical Equipment
Hospitals must maintain:
- High-pressure sterilizer and instrument sterilizer
- Oxygen cylinders with attachments
- Surgical equipment including IV apparatus
- Pathological laboratory for blood, urine, and stool tests
- ECG monitoring system
- Standby generator for power failures
Staffing Norms
- One qualified doctor per 20 beds (round-the-clock availability)
- For ICU facilities: Minimum two qualified doctors exclusively on duty 24/7
- One nurse per five beds (round-the-clock)
- For ICU: Four nurses per four ICU beds exclusively
Record-Keeping Requirement
Hospitals must maintain detailed patient records including:
- Name, address, occupation, sex, age
- Admission and discharge dates
- Diagnosis and treatment details
Conditions for Indian System & Homeopathic Hospitals
For hospitals offering treatment under Indian systems of medicine or homeopathy, approval will be based on compliance with the Office Memorandum dated 6 June 2002 issued by the Department of Indian Systems of Medicine and Homeopathy, Ministry of Health and Family Welfare, applicable to Central Government Health Scheme beneficiaries.
Prescribed Diseases Eligible for Perquisite Exemption
Rule 18 clearly defines the diseases and medical conditions eligible for exemption under Section 17(2)(b)(ii). These include:
- Cancer
- Tuberculosis
- AIDS (Acquired Immunity Deficiency Syndrome)
- Major organ diseases requiring surgical operation
- ENT and eye surgeries
- Orthopaedic surgeries including fractures and vertebral dislocation
- Gynaecological and obstetric surgeries including caesarean and laparoscopic procedures
- Serious ailments requiring hospitalization for at least 3 continuous days
- Burn injuries
- Mental disorders (neurotic or psychotic) requiring minimum 3 days hospitalization
- Drug addiction (minimum 7 days hospitalization)
- Anaphylactic and severe allergic reactions requiring minimum 3 days hospitalization
The rule also clarifies that "surgical operation" includes modern procedures such as angioplasty, dialysis, lithotripsy, laser surgery, and cryo-surgery.
Definition of Qualified Medical Personnel
- A "qualified doctor" must hold a degree recognized by the Medical Council of India and be registered with a State Medical Council.
- A "nurse" must possess a recognized Nursing Council certificate and be registered under applicable law.
Key Impact for Employees and Employers
The detailed compliance framework under Rule 18 ensures that tax exemptions for medical perquisites are granted only when treatment is undertaken at approved and properly equipped hospitals. Employers providing medical reimbursements must verify that the hospital satisfies these prescribed conditions to avoid perquisite tax disputes.
With healthcare expenses rising, the clarification under the Draft Income-tax Rules, 2026 provides certainty while also tightening regulatory oversight to prevent misuse of medical perquisite exemptions.
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