Ask us: on investments

Q. I retired from a government-owned bank in July 2018.

My employer has got a medical assistance fund for retirees and their spouses. From this fund, a group mediclaim policy is taken for covering hospitalisation expenses subject to a maximum of ₹4 lakh per hospitalisation.

Recently, I was admitted to a hospital for undergoing a neurosurgery for Parkinson’s disease and the total expenses amounted to ₹15 lakh. Of this, the insurance company paid ₹4 lakh and the balance amount was paid by me. After writing to the bank, I received ₹8 lakh from the medical fund leaving ₹3 lakh to be borne by me.

Now, my question is: are the amounts received from the insurance company and the bank taxable?

R. Sampath

A. There are no express provisions entailing taxability of medical insurance claims in the Income Tax Act, 1961. It is widely understood that such claims received from insurers are reimbursements in nature, as medical expenses are already incurred by the policyholder wherein insurers either take over such expenses in cashless claims or make a direct payment to policyholders on scrutiny of medical records and bills. In our opinion, such receipts are not taxable in the hands of the policyholder irrespective of the deductions claimed under section 80D.

With respect to the amount received from the fund of the bank, the querist has not clarified whether the fund is registered under Section 12A/12AA/10(23C). The amount received from the funds registered under the sections referred to are not subjected to tax.

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Q. I had taken a home loan of ₹20 lakh in 2016. About 10 days ago, I received ₹2.3 lakh under the Pradhan Mantri Awas Yojana interest subsidy. Is it tax exempt or taxable?

Besides, I also pre-paid ₹2 lakh towards the home loan.

Selvakumar V.

A. As per the scheme policy, interest subsidy will be credited upfront to the loan account of beneficiaries through primary lending institutions, resulting in a reduced effective housing loan and equated monthly instalment (EMI). The interest subsidy under CLSS is released on approval of the nodal agencies directly to the applicant’s lender in lump sum. As this results in reduced EMIs over the remaining tenure of the loan, it can be considered as a “capital receipt”. Capital receipts are not chargeable to tax under the Income Tax Act. This view is also supported vide an ITAT Ruling in Kolkata bench in the case of DCIT V. Pricewaterhouse Coopers Pvt. Ltd. in 2016.

(The author is partner, GSS Associates, Chartered Accountants, Chennai)

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