Does Health Insurance Payout Count as Income for Tax Purposes in India?

Health insurance is meant to reduce the impact of medical expenses. However, one of the most commonly asked questions is whether payouts from a health insurance claim are considered taxable income.

The answer is no, as health insurance payouts are typically not treated as income for tax purposes in India. Keep reading to know more.

What are Health Insurance Payouts?

Health insurance payout means the payment made by the insurance company in order to meet the costs incurred towards medical treatment. This can be done in one of two ways: either making the payment directly against the bill via a cashless facility, or paying back the cost after you provide all necessary documentation.

These payments are not regarded as income. They merely serve to cover the costs you have already incurred. The fact that no profit-making is involved here makes it ineligible for classification as “income”.

Are Health Insurance Payouts Taxable in India?

Amounts received for health insurance claims from insurers are typically non-taxable in India as they are merely reimbursement for actual expenditures incurred on health care. Nonetheless, it should be noted that this does not apply to medical benefits offered by employers, such as HRAs (house rent allowance).

According to Section 17(2) of the Income Tax Act, medical reimbursements received by an employee from an employer are non-taxable to a maximum of ₹15,000 per financial year, subject to proper documentation through valid bills.

The balance of the payment, if any, will be included in your salary. It is important to note that:

• Amounts of medical reimbursement up to ₹15,000 per year are non-taxable if properly documented.


• Reimbursable amounts beyond this threshold become taxable as salary income.


• Premium payments towards health insurance made by an employer are non-taxable.

It should be noted that this is applicable only if you provide proper bills for your actual expenses.

When are Reimbursements Taxable?

All the reimbursements are eligible for exemption under the tax laws in India. The following cases may lead to taxing of the reimbursements:

• Where the recipient fails to furnish legitimate medical receipts.


• When there exists a predetermined medical allowance by the employer without considering the expenses incurred.


• Where the overall reimbursement amounts to more than ₹15,000 in a financial year, such reimbursement amounts beyond ₹15,000 become liable to be taxed.

For example, if one receives ₹25,000 as medical reimbursement, then the taxable amount would be ₹10,000 as against ₹15,000, which gets tax exemption. Another important aspect is the payment of health insurance claims by insurers, which are not subject to taxation.

In India, health insurance payments are treated as non-taxable as they constitute reimbursement of costs incurred on one’s health, rather than an income. However, the claim must be genuine and supported by medical bills to avail the tax exemption.