Draft Rule 18 – Medical Treatment Perquisite Exemption Explained

 

📢 The Draft Income-tax Rules, 2026 introduce Rule 18, which clarifies when medical treatment provided by an employer will NOT be treated as a taxable perquisite under Section 17(2)(b)(ii) of the Income-tax Act.

This rule mainly focuses on serious medical treatments provided in approved hospitals.

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🏥 What is a Medical Perquisite?

When an employer pays or reimburses medical expenses of an employee, it may be treated as a perquisite (benefit) and taxed as salary income.

However, the law provides exemptions in certain cases.

Rule 18 specifies the situations where such medical treatment will not be taxed.

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✔ When Medical Treatment Will Not Be Taxable

Medical expenses paid by the employer will be exempt from tax if:

✅ Treatment is for specified serious diseases
✅ Treatment happens in a hospital approved by the Chief Commissioner / Principal Chief Commissioner

This ensures that the exemption is used only for genuine medical treatment in proper hospitals.

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🩺 Diseases Covered Under the Rule

The exemption applies to treatment for serious medical conditions such as:

• Cancer
• Tuberculosis
• AIDS
• Major heart diseases
• Organ-related diseases requiring surgery
• Fractures requiring orthopaedic treatment
• Caesarean and obstetric procedures
• Severe burn injuries
• Mental disorders requiring hospitalisation
• Drug addiction treatment
• Severe allergic reactions (anaphylactic shock)

In most cases, the patient must be hospitalised for at least 3 continuous days.

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🏨 Conditions for Hospital Approval

To qualify for this exemption, hospitals must meet certain minimum infrastructure and medical standards, such as:

✔ Registration with local authority
✔ Minimum 10 patient beds
✔ Proper operation theatre and sterilisation facilities
✔ Qualified doctors and nursing staff available round the clock
✔ Medical equipment and diagnostic laboratory
✔ Proper patient record maintenance

These standards ensure that only genuine hospitals qualify for the exemption.

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🌿 Hospitals under Indian Systems of Medicine

Hospitals providing treatment through:

• Ayurveda
• Siddha
• Unani
• Homeopathy

will be approved based on guidelines issued by the Ministry of Health (Office Memorandum dated 6 June 2002).

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