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The difference between medical reimbursement and allowance!

Relax With Tax | May 25, 2005

You have a question about house rent allowance, medical allowance or even a general tax query.
Here's where we step in with our experts, Relax With Tax.

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This is with reference to my annual medical allowance of Rs 15,000.

Do supporting medical bills have to be given to the company to claim tax benefit?

- Sushant Potdar

Let's start by using the right nomenclature with reference to the medical component of your salary.

It should be termed Medical Reimbursement, not Medical Allowance. This is because allowance per se is taxable in all cases, except those specifically exempted.

For general medical reimbursement, Rs 15,000 is the maximum tax break that an individual can avail of against actual supporting documents.

Let's say that, based on your company rules, you are eligible for medical reimbursement of a month's basic salary. Let's further assume that this is Rs 30,000.

So the amount you are eligible for reimbursement is Rs 30,000.

Now there are two aspects to this situation: you need to submit at least Rs 30,000 worth of medical bills to claim the eligible reimbursement from your employer.

Second, the tax break would only be available for Rs 15,000, though you have provided bills for Rs 30,000.

My wife is a housewife and has no source of income. 

If I open a fixed deposit in her name, will the interest earned be treated as my income or hers? 

Will she have to pay tax on the interest earned?

- Sanjay

Your analysis of the situation seems slightly off the mark.

In pure taxation terms: the transfer of assets in the name of spouse without consideration does not mean that the income generated from such transferred assets will be taxed in the hands of the spouse.

In other words, when you transfer an asset to your wife's name, free of cost, it continues to be taxed by you. This concept is referred to as 'Clubbing of income'.

Of course, if the investment is made out of 'household savings', you could say the income generated from such an investment should be taxed as your wife's income.

My parents underwent open heart surgery.

I spend Rs 3,000 to Rs 4,000 every month on their medicines. Can I avail of a tax benefit on this amount?

Would this surgery be covered under section 80DD?

- Balaji

Section 80DD deduction is available only towards medical treatment of dependents with specified disabilities. This is not applicable in your case.

Also, the benefit available under section 80DDB will not apply since heart disease is outside the purview of specified ailments that are prescribed there.

You could use the exemption afforded to employees for medical reimbursement up to Rs 15,000.

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Note: Questions may be edited for brevity. Due to the tremendous response, all queries will not be answered.

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Illustration: Dominic Xavier

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Number of User Comments: 5

Sub: Tax Exemption on Heart problems

I am working in a pvt. company. In the present assessment year our employer did not allowed me any exemption for Rs.2 lakh Rs. I ...

Posted by PK Prabhakaran

Sub: Information

Sir, My Mom is suffering from Breast Cancer and every month I have an expenditure of min... 20000 against the medicine and other medical activities. ...

Posted by Vineet Bharadwaj

Sub: 80DD query

Hi I have a handicapped dependent - who is my mother's younger sister. ACT 80dd says - exemption is allowed for relative. Could not find ...

Posted by rajesh shetty

Sub: Query : HRA Taxable or Not

From financial year 2005-2006, whats the policy on HRA. IS it same like previous years or total HRA is taxable? Regards Ganesh

Posted by Ganesh

Sub: Tax benefits

Dear Expert, I am payment the following every year: 1) Repayment of house lone + interest 2) Tuition fee of Rs 36,000 to an Engg ...

Posted by V V Joshi


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