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Augment benefits
February, 22nd 2010

Medical expenditure has become an inevitable part of household budgets. Today access to quality medical care has improved and the Indian family is also more willing to invest in quality healthcare. However, the cost of medical treatment has also gone up significantly. Many a times, people with limited incomes find themselves unable to meet their medical expenses. Tax benefits from the government would go a long way towards boosting the individual's affordability of healthcare and provide a boost to this sector.

The current tax laws as well as the proposed Direct Tax Code have certain provisions providing exemptions or deductions for healthcare related expenses. However, some of these limits were fixed long ago and need to be revised upwards in the light of factors such as level of income, size of family, and cost of medical treatment. Hence, there is a need to re-visit all or at least some of these deductions in this year's budget. The following are some of the tax-related expectations for the healthcare sector:

Increase exemption of reimbursement

Currently, any reimbursement of medical expenses by the employer to the employee is not taxable up to Rs 15,000 per annum. The last time this limit was increased was in 1999, when it stood at Rs 10,000 per annum. In the light of average family size and increased cost of medical treatment, this decade-old limit needs to become more realistic. In our view, it should be enhanced to at least Rs 25,000 per annum.

Deduction for non-salaried individuals

While everyone incurs medical expenses, currently a deduction is available only to salaried individuals. To maintain parity between salaried and non-salaried individuals, a deduction of Rs 25,000 per annum should be introduced for non-salaried individuals as well.

Increase deduction for specified diseases

A deduction is currently available to an individual for expenditure incurred on the medical treatment (including nursing), training and rehabilitation of a dependant who has a disability (e.g., autism, cerebral palsy, multiple disability, etc.). This deduction is also available for any amount deposited into a scheme of LIC or any other insurer for maintenance of such a disabled dependant. The limit for such deduction is currently Rs 50,000 per annum for partial disability. This limit was fixed in 2004.

Similarly, a deduction is allowed if an individual has incurred medical expenditure on himself or his dependant for the treatment of specified diseases (e.g., malignant cancer, AIDS, chronic renal failure, etc.). This deduction is restricted to Rs 40,000 per annum (for non-senior citizens) since 2000.

The amount specified for the above deductions may have been reasonable when the limits were introduced. However, in view of the current level of expenditure on the specified ailments, and given the level of inflation in medical expenses, there is a case for revising these limits to at least Rs 1 lakh per annum for each of the above specified medical conditions.

Expand the scope of prescribed diseases

Currently, if the employer reimburses any medical expenses of an employee or his family member for medical treatment of prescribed diseases (e.g., cancer, tuberculosis) in an approved hospital, the employee does not have to pay a tax on this amount. The list of such prescribed diseases needs to be updated to include recent mass diseases such as swine flu.

Deduction on capital expenditure

Currently, any capital expenditure incurred by a company for the purpose of promoting family planning among its employees is allowed as deduction from the company's income in five equal instalments.

There exists a good case for extending this benefit of deduction on capital expenditure to other medical benefit schemes (e.g., treatment or prevention of heart disease, AIDS, cancer, etc.) that may be run by the employer for the benefit of his employees and their family members.

Moreover, this benefit could be extended to employers other than companies as well.

This will encourage employers to take an initiative for running such schemes, which in the absence of adequate government healthcare system will prove to be a boon for the public.

The above tax incentives will surely encourage and enhance private-sector spending on healthcare and medical expenditure. It remains to be seen how many of these suggestions actually see the light of the day in Budget 2010.

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