Difference Between Medical Allowance and Medical Reimbursement (The 2025 Guide)

What is the difference between medical allowance and medical reimbursement? Medical allowance is a fixed salary component, fully taxable, and doesn’t require any proof. In contrast, medical reimbursement claims require valid proof, like prescriptions, hospital discharge papers, etc. Originally, medical reimbursement allowed for up to ₹15,000 annual tax exemption on medical bills. The 2018 Union Budget replaced it with a standard deduction of ₹50,000 for salaried individuals.

Whether you’re trying to understand your salary structure or plan taxes ahead, it makes sense to know the difference between medical allowance and medical reimbursement.

In this article, you will learn: 

• How medical allowance and medical reimbursement are structured for employees
• How standard deduction replaced medical reimbursement
• How salary-linked medical reimbursements differ from corporate health insurance reimbursement
• The taxability for medical allowance and medical reimbursement in 2025

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What is Medical Allowance?

Medical allowance is a fixed amount paid by employers every month as part of the salary. The idea behind offering medical allowance is to help employees cover their day-to-day medical expenses (like doctor visits, medicines, diagnostic tests, etc.)

The best part? You don’t need to show any proof to receive medical allowance. Even if an employee doesn't spend on healthcare, the allowance will be paid as a fixed salary component.

How much medical allowance is paid to salaried employees in India?

There is no statutory limit in India for paying medical allowance. While medical reimbursement was capped at ₹15,000 under Section 10(14) and Rule 2BB of the Indian Income Tax Act, medical allowance remained a fixed salary component decided by the employer. So, the amount varies from one organization to another.

Is medical allowance tax-free?

No! Medical allowance is fully taxable as a part of gross income and therefore taxed based on the income slab. Even if one uses the entire medical allowance, there will be no tax exemption. That’s why some companies prefer merging the medical allowance with the basic or special allowance. 

What is Medical Reimbursement?

Strictly from an employer–employee viewpoint, medical reimbursement no longer exists. Until FY 2018, it was different, when employees could still submit medical expense bills and claim up to ₹15,000 annually as a tax benefit.

The 2018 budget abolished the benefit along with the transport allowance. Instead, a flat standard deduction of ₹50,000 was introduced for all salaried employees to simplify the tax structure and offer a uniform benefit.

Note: Currently, there’s no medical reimbursement system available through employee payroll in India. The standard deductions are automatic for all salaried individuals and do not require submitting any medical bills.

What About Corporate Health Insurance Reimbursement?

Salary-linked medical reimbursements are not to be mixed with corporate health insurance reimbursements. Let’s draw a clear picture. 

• Salary reimbursement (abolished in 2018): It was when employees could still submit medical bills and get up to ₹15,000 tax benefits. However, the system no longer exists. Employers can still reimburse bills, but without any special tax exemption.
• Corporate health insurance reimbursement (still valid in 2025): This is where an employer pays the insurance premium for a group health policy. It covers employees along with their dependents (like spouses, children, and parents). The medical expenses are either settled as “cashless” or reimbursed by the insurer. In most cases, inpatient hospitalization is covered, but some policies may also include outpatient (OPD) care.

Some of the common expenses covered by a corporate health insurance are :

• Pre & post hospitalization charges (including doctor consultation fees)
• Prescription medicines
• Diagnostic tests
• In-hospitalization costs

Think your corporate insurance won’t cover critical medical needs? Worried about losing cover if you switch jobs? Check out our recommended individual health insurance for corporate employees in 2025 and stay protected.

Key Differences Between Medical Allowance and Medical Reimbursement

Here’s a clear breakdown of key differences between medical allowance and medical reimbursement for employees under current tax rules.

Aspects	Medical Allowance	Medical Reimbursement
Proof Needed	No	Not applicable
Taxability	Fully taxable	Covered under standard deduction
Payment method	Monthly as a salary component	Deductions auto-applied
Employer role	Fixed by employer	Not controlled by employer
Tax Exemption	None	₹50,000 for salaried individuals remains unchanged (under old regime) ₹75,000 (under new regime)

Key Takeaways: Medical allowance is a fixed monthly salary component, fully taxable, and needs no proof. Medical reimbursement was replaced with a flat standard deduction. Standard deduction is automatic, ₹50,000 per year (now increased to ₹75,000 for all salaried individuals as per FY 24-25). Corporate health insurance reimbursements are still valid, tax-free, and separate from salary. Always consult a tax expert or employer HR for more details regarding relevant tax regime, applicable deductions, and reimbursements.

Why Choose Ditto for Your Health Insurance?

Medical allowances and reimbursements can only offer limited relief. The need of the hour is a solid cover for health emergencies. At Ditto, our IRDAI-certified advisors can help salaried individuals bridge protection gaps with health insurance plans that genuinely safeguard against rising medical expenses. Over 7,00,000 customers trust and recommend us for all good reasons.

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Conclusion

The difference between medical allowance and medical reimbursement is clear; medical allowance is still paid but fully taxable, while medical reimbursement has long been replaced with a flat standard deduction. While corporate health insurance remains valid, it lasts as long as you’re employed in a particular organization. 

In short, nothing can deliver 100% coverage like an individual health insurance plan. So, quit waiting and book a free call with Ditto where our experts can guide you right.

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