Medical reimbursement not income, it’s tax-free

SC Vasudeva

I am 82-year-old retired from PSPCL, Punjab. I suffered from a heart problem in July 2017 and had to undergo angioplasty (two stents) at a Jalandhar hospital duly approved by Chief Commissioner of Income tax. The disease is covered under Rule 3 under Section 17/2. Medical reimbursement was given by my employer to the extent of Rs 87,000 out of my medical reimbursement bill of Rs 1,87,000. Kindly inform if I have to treat reimbursement amount of Rs 87,000 as my income and pay income tax thereon or is this reimbursement tax free.

After my retirement, I had taken health insurance policy from New India Assurance Co. and have been paying premium continuously since 1998. Can I claim balance amount of my medical reimbursement bill amounting to Rs 1,00,000 from insurance company and whether any such amount paid to me by insurance firm will be considered as income and attract income tax or whether it will be tax free? Yearly insurance premium is around Rs 21,000. I fall in 30% tax bracket as far as income tax payment is concerned. — RK Saini

a) The amount of Rs 87,000 reimbursed to you by the employer is not taxable in view of the provisions of Section 17 of the Act.

b) You can claim balance amount of Rs 1,00,000 under the medical insurance policy and any amount reimbursed to you by the insurance company would not be taxable.

Kindly advise on following:

a) Is there any provision of exemption in interest from post office savings accounts (Rs 3,500) in addition to Rs 10,000 for interest earned from savings account in a bank?

b) Is there any other scheme of investment (ELSS etc.) allowing rebate in income tax beyond the limit of Rs 1.5 lakh u/s 80C?

c) Can a father claim rebate in income tax against the amount invested in the PPF a/c of his major son/daughter (married or unmarried, earning or not earning)? Please advise. — SN Gupta

(a)    The deduction of Rs 10,000 allowable under Section 80TTA of the Income-tax Act 1961 (The Act) for assessment year 2018-19 is in addition to the exempt income of Rs 3,500 from interest earned on Post Office savings account.

(b)    You can deposit an additional amount of Rs 50,000 under pension scheme covered by Section 80CCD (1B) of the Act provided you are within the age limit of 18 to 40 years.

(c)    A father can claim rebate in respect of amount deposited in Public Provident Fund account of his major son/daughter irrespective of the fact whether he or she is earning any income.

The employees who are appointed after January 2004 are treated under 'New Pension Scheme'.  The pension account of such employees has been opened individually in which 10% of basic pay + DA are deducted from their salary and an equal amount from the government is deposited in the pension account of the employee. Income-tax rebate on this amount is allowed under Section 80CCD(1) by including in Section 80C.  Now, a new Section 80CCD(1B) (NPS) has been framed for such employees and a rebate of Rs 50,000 can be claimed under this section. This rebate will be in addition to that of Rs 1,50,000 u/s 80C.  Thus, total rebate comes to Rs 1,50,000 (80C) + Rs 50,000 (80CCD(1B) = Rs 2,00,000. The saving of an employee for the financial year is as following:

Section 80CCD(1):   Rs 80,000
PPF: Rs 70,000
LIC:   Rs 30,000
NSC VIII issue: Rs 20,000
Total: Rs 2,00,000

My request is whether an employee can have the rebate of Rs 50,000 u/s 80CCD(1B) from the amount of Rs 80,000 deposited u/s 80CCD(1) and rebate of remaining Rs 30,000 be taken by adding in Section 80C.  Thus, rebate will be Rs 1,50,000 u/s 80C and Rs 50,000 u/s 80CCD(1B). — SVS

Deposit under Section 80CCD(1B) of the Income-tax Act 1961 (The Act) is in terms of a new scheme notified in terms of the said section. This section was inserted by the Finance Act, 2015.  This section became effective from April 1, 2016 whereas the deposit under Section 80CCD(1) is under a different scheme. Therefore, it may not be possible to allocate the amount of Rs 30,000 deposited under Section 80CCD(1) of the Act for being considered for deduction under Section  80CCD(1B) of the Act. A deposit under the new scheme will have to be made under such scheme so as to claim a deduction under Section 80CCD(1B) of the Act.