B. Earning Components | 5. Medical Allowance
Medical Allowance is a non-mandatory component of the salary structure, provided by employers to support employees with medical expenses or health insurance coverage.
📋 Key Highlights:
- Not compulsory under Indian labour laws, but offered by many employers for welfare
- Under the old tax regime, tax-exempt up to ₹25,000/year (₹2,083/month) if supported by bills or insurance proof
- Exemption is only available to those opting for the old tax regime, not the new one
🧾 Why Employers Offer Medical Allowance:
ESI (Employees' State Insurance) applies only to employees with gross salary ≤ ₹21,000/month.
For employees earning above this, employers often provide:
- A fixed Medical Allowance, or
- A Group Health Insurance policy (premium paid by employer)
📌 Important Notes:
- Medical Allowance is not percentage-based like Basic or HRA
- No fixed or mandatory amount — employer-defined as per policy
- Tax exemption capped at ₹25,000/year (old regime only)
✅ Summary:
- Optional salary component – can be cash allowance or health insurance
- Tax benefit: ₹25,000/year under old regime
- No tax exemption under new regime
- Given mainly to those not covered under ESI
- Fully customizable by employer based on CTC structure
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