Health Benefits and Your Taxes
Employers often provide health-related benefits to attract and retain talent. This usually takes two forms: reimbursing your pharmacy and doctor bills, or paying the premium for a corporate health insurance policy.
The tax treatment for these two benefits is completely different.
1. Medical Reimbursements (Fully Taxable)
Years ago, employees could submit pharmacy bills and doctor consultation receipts to claim a tax exemption of up to ₹15,000 per year.
This exemption no longer exists. It was abolished and absorbed into the flat Standard Deduction (currently ₹75,000 in the new regime).
Today, if your employer gives you a "Medical Allowance" or reimburses your outpatient medical bills, that entire amount is fully taxable. It is added to your gross salary and taxed at your applicable slab rate.
Exception: Treatment in an employer-maintained hospital, a government hospital, or a hospital approved by the Chief Commissioner for specific diseases remains tax-exempt.
2. Corporate Health Insurance Premium (Tax-Free)
If your employer buys a group health insurance policy for you and your family and pays the premium directly to the insurance company, this is a tax-free perquisite.
The premium amount paid by the employer is not added to your taxable salary.
Can You Claim Section 80D? - **Employer Paid:** You cannot claim a Section 80D deduction for the premium paid by your employer. - **Employee Co-pay:** If your employer deducts a portion of the premium from your salary (co-pay) to cover your parents or upgrade the policy, you **can** claim that deducted amount under Section 80D (only if you opt for the old tax regime).
Two benefits, two outcomes
| Benefit | Tax treatment |
|---|---|
| Medical reimbursement / allowance | Fully taxable |
| Employer-paid group insurance premium | Tax-free perquisite |
The old Rs 15,000 medical-reimbursement exemption was withdrawn from FY 2018-19 and folded into the standard deduction, so cash medical reimbursements are now fully taxable. Source: Finance Act 2018; Income Tax Act Section 16(ia).
What you should do
- Treat any cash "medical allowance" as taxable salary, not exempt
- Do not add employer-paid group premium to your income; it is a tax-free perk
- Claim 80D only on the premium portion you actually paid (old regime)
- File from the Form 16 figures, which already reflect these rules
Common mistake
Still claiming the Rs 15,000 medical exemption. It no longer exists; the standard deduction replaced it, so re-claiming it overstates your exemptions.
How to Report in ITR
You don't need to do any complex calculations. Your employer is aware of these rules and will structure your Form 16 accordingly. - Taxable medical reimbursements will be included in your Gross Salary. - Tax-free insurance premiums will not be added to your perquisites. - Any eligible 80D deductions deducted via payroll will be listed in Chapter VI-A.
When you upload your Form 16 to LastMinute ITR, we read these values exactly as reported by your employer, ensuring your tax computation is accurate and hassle-free.