All Government employees and most of the private sector employees know of these terms – Medical Reimbursement and Medical Allowance. Almost all of them believe that these are just two different names of the same individual. Only a few of them understand the exact difference between these two in terms of taxation, applicability and so on. Let us look at the difference between them in terms of few factors.
- Allowance – It is a form of perquisite or expense paid regularly to an employee to meet his/her needs and expenses.
- Reimbursement – It is a form of perquisite paid regularly to an employee only when the employee incurs a specific expense.
- Medical Allowance – Any allowance paid by an employer to an employee is taxable in the hands of the employee. Medical allowance is no exception to this rule.
- Medical Reimbursement – It is tax exempt up to Rs. 15,000 p.a.
Maximum amount that can be paid by Employer
- Medical Allowance – As per Employer’s policy.
- Medical Reimbursement – As per Employer’s policy.
- Medical Allowance – The amount will be credited to the employee’s account and medical bills are not required for this purpose.
- Medical Reimbursement – Amount that is reimbursed to the employee upon submission of supporting medical bills is not taxable. If an employee fails to submit bills, this amount can still be paid, but will be taxable as per the tax slab.
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