Amount received against mediclaim policy is tax free

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tax free

Query 1]

  1. Kindly intimate whether expenditure for indoor treatment paid by insurance company against mediclaim insurance policy is taxable or not under Income Tax Act? Please advise in details.[Alok]
  2. I have a joint policy for mediclaim and annual premium is Rs. 5,780/-. My wife was operated in Dec-14 and again in Jan-15. The total bill on operation, hospitalization, pathology, MRI, medicines etc. came to Rs. 94,000/-. I received mediclaim amount of Rs. 38,250/- in April/May 15.  Will this amount attract income tax? []


An apple a day may not keeps the doctor away in today’s time. Now, we have to meet doctors more frequently, even more than we meet our near dear ones. Mediclaim policy has become an important safeguard against hefty medical bill.

Money received through a claim under the medical policy is only a reimbursement of expenditure already incurred by the policyholder. It is outside the ambit of the definition of “Income” given in the Income Tax Act-1961. As this does not amount to income for the insured person, this money is not taxable. Therefore, the medical expense reimbursement credited in your account or paid directly to the hospital will not be included in the total income for tax purposes.

Query 2]

I have following queries. Assessee has sold residential house for Rs. 45 Lacs on May-2013. As he was not having any other house, in July-2014, he deposited whole sum of Rs. 45 Lacs in a capital gain account and filled return accordingly. In May-2015, he purchases a flat which is under construction at Rs. 33 Lacs. Suppose capital gain was Rs. 8 Lacs, My queries are:

  1. Is he liable to pay any capital gain tax?
  2. As per capital gain account, one can withdraw more than Rs. 25,000/- in draft or cheque in the name of seller only. So, they gave that Rs. 33 Lacs of flat from that account but bank refuse to return Rs. 12 lacks citing reason that if he withdraws now, bank would deduct TDS @ 20%. How should he withdraw remaining 12 Lacs? Can he show additional purchase of furniture, sanitary, plumbing work for valid withdraw? What is procedure to withdraw the balance amount of Rs. 12 Lacs? Please advise me. []


  1. There appears to be a general ambiguity & misconception with regard to the mode of claiming an exemption of Long Term Capital Gain (LTCG). If LTCG arises from sale of residential house property, exemption would be available u/s 54. If LTCG arises from sale of any capital assets (other than residential house property), exemption could be claimed u/s 54F. There is a difference in the mode of computing exemption under section 54 vis a vis section 54F. An exemption u/s 54 is available on the basis of investment of LTCG whereas for exemption u/s 54F, taxpayers have to invest the amount of “Net Sale Consideration”. In short, if capital gain arises from sale of house property, mere investment of LTCG is relevant for availing an exemption and not entire sale consideration.
    [There are two more conditions for claiming an exemption u/s 54F which are not there for claiming an exemption u/s 54, as under:
    a) Taxpayer should not own more than one house property, other than the new asset, on the date of transfer of the original asset.
    b) Taxpayer should not purchase any residential house, other than the new asset, within a period of two years after the date of transfer of original asset or constructs any other residential house, other than the new asset, within a period of three years after the date of transfer of the original asset.]
  2. To claim an exemption u/s 54, taxpayers have to invest LTCG in purchase/construction of another house property within a prescribed time frame. The prescribed time periods are as under:
    a] For purchase:
    One year before or two years after the date of sale.
    b] For Constructions:
    Three years from the date of sale.
  3. In your specific case, the flat was required to be purchased by May-2016 to get an exemption u/s 54. Since, transaction could not be completed by July-14 (i.e., the due date of filing income tax return for the relevant year), amount was deposited in the Capital Gain Deposit Account Scheme (CGDAS). However, he was required to deposit merely the amount of LTCG (i.e., Rs. 8 Lacs) & not entire amount of sale consideration (i.e., Rs. 45 Lacs). Further, for entire LTCG exemption, investment of Rs. 8 Lacs only would have been sufficient. He has invested Rs. 33 Lacs in another house property which is more than the amount of LTCG. Effectively, he has fully complied with the stipulation of Section 54 & there is no obligation on him to invest the balance amount of Rs. 12 Lacs.
  4. Important question, how to withdraw the balance amount of Rs. 12 Lacs from the CGDAS. The bank has to issue DD in favor of the person to whom depositor intends to make the payment if the payment amount exceeds Rs. 12 Lacs. He can apply to the bank, with the approval of his assessing officer, for closure of your CGDAS account in Form G. While approaching assessing officer, he may mention that:
    a] He has wrongly deposited the amount of Rs. 45 Lacs as against the required amount of Rs. 8 Lacs.
    b] He has fulfilled the conditions of exemption u/s 54. The copy of the sale deed may also be submit to his assessing officer.
  5. After making in application in Form G as mentioned above, he would be able to get back the unitized amount of Rs. 12 Lacs without any payment of tax whatsoever


tax free

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