Many employees do not clearly understand the components of their salary structure and the tax implications of each. Typically, salary is the combination of basic pay along with various allowances such as house rent, medical, leave travel and others. Different tax rules apply to each component. Not all allowances qualify for tax exemption. And those that do may have an upper limit till which tax exemption is allowed. The tax implication can also differ based on the nature of payment to the employee.
For instance, both medical allowance and medical reimbursement are meant to be paid against the medical expenses incurred by an employee. However, the two are treated differently when it comes to taxation. Here is how.
WHAT IS THE DIFFERENCE?
If you get a fixed medical allowance as part of your monthly salary, the whole amount you receive in the year will form a part of your taxable salary. In case of medical allowance, the employee does not have to submit any medical bills to the employer to claim her money. While medical allowance is fully taxable, medical reimbursement is tax-free to a certain extent.
WHAT ARE THE DIFFERENT TAX RULES?
