Published 9 May 2026
Sub-section (2)(viia) of section 17 of the Income-tax Act, 1961 read with the proviso to Rule 3A of the Income-tax Rules, 1962 -- the long-standing exclusion of employer-borne medical treatment of specified diseases abroad; the Reserve Bank of India Liberalised Remittance Scheme outflow framework; the section 206C(1G) Tax Collected at Source of 5% on medical-purpose remittances; and the Rs 8 lakh Gross Total Income threshold that opens the practical opportunity for middle-class salaried employees
Taxpayer Brief
Where an employer pays for the medical treatment of an employee or a member of the employee's family outside India, clause (vi) of the proviso to section 17(2) of the Income-tax Act, 1961 keeps the cost out of the perquisite charge: the treatment and stay abroad to the extent permitted by the Reserve Bank of India, and the travel of the patient and one attendant only where the employee's gross total income (computed before including that expenditure) does not exceed a threshold. That threshold was rupees two lakh, which in practice confined the travel exclusion to very low earners. The Finance Act, 2025 replaced the figure with 'such amount as may be prescribed' from assessment year 2026-27, and rule 3D of the Income-tax Rules, 1962 prescribes rupees eight lakh. This article walks through the framework, the documentation, and how the wider travel exclusion works in practice.
Complexity Matrix
Feature | Complexity Level | Primary Risk |
|---|---|---|
Domestic medical treatment paid by employer | Low | Governed by other clauses of the proviso to section 17(2); no income threshold |
Foreign medical treatment + travel, Gross Total Income up to Rs 8L | Medium | Treatment and stay excluded only to the extent permitted by the Reserve Bank of India; Form 12BA |
Foreign medical treatment, Gross Total Income above Rs 8L | High | Travel cost becomes a taxable perquisite; treatment and stay still excluded to the extent permitted by the Reserve Bank of India |
Self-funded foreign treatment | Very High | Section 80DDB deduction; Liberalised Remittance Scheme outflow; TCS under section 206C(1G) |
1. The Statutory Framework -- Clause (vi) of the Proviso to Section 17(2) read with Rule 3D
Provision | Effect |
|---|---|
Clause (vi) of the proviso to section 17(2) | Excludes from 'perquisite' employer expenditure on (1) medical treatment of the employee or a family member outside India, (2) travel and stay abroad of the patient, and (3) travel and stay abroad of one attendant |
Condition on treatment and stay | Excluded only to the extent permitted by the Reserve Bank of India |
Condition on travel | Excluded only where the employee's gross total income, computed before including the expenditure, does not exceed the prescribed amount |
Clause (vii) of the proviso | Extends the same treatment, on the same conditions, to the employer's reimbursement of such expenditure incurred by the employee |
Threshold up to assessment year 2025-26 | Rupees two lakh |
Threshold from assessment year 2026-27 | Rupees eight lakh -- rule 3D of the Income-tax Rules, 1962 (Notification No. 133/2025 dated 18 August 2025) |
Why the threshold matters The rupees two lakh threshold had stood unchanged for many years, so most salaried employees whose employers paid for treatment abroad were taxed on the travel element. The rupees eight lakh threshold brings more employees within the travel exclusion; the treatment and stay elements never carried an income test and remain limited only by what the Reserve Bank of India permits. |
2. No Specified-Disease Condition
Clause (vi) does not limit the exclusion to any list of diseases. Rule 3A of the Income-tax Rules, 1962 lists diseases for a different clause of the proviso (treatment in hospitals approved by the Principal Chief Commissioner or Chief Commissioner in India); it does not govern treatment abroad.
3. Travel and Stay Expenses Coverage
Clause (vi) covers (i) the medical treatment abroad, (ii) the travel and stay abroad of the patient, and (iii) the travel and stay abroad of one attendant. Treatment and stay are excluded to the extent permitted by the Reserve Bank of India; travel is excluded only where the employee's gross total income, before including the expenditure, does not exceed rupees eight lakh (from assessment year 2026-27). The authorised dealer bank's records of the medical-purpose remittance document the foreign-currency outflow.
4. Worked Example -- Cardiac Surgery in Singapore
Ms. Sneha, a 35-year-old marketing executive with a salary of rupees seven lakh (gross total income of rupees six lakh fifty thousand after the rupees fifty thousand standard deduction under the old regime, before any Chapter VI-A deduction), needed cardiac surgery for a complex congenital heart condition. The Mumbai hospital recommended Mount Elizabeth Hospital, Singapore. Total cost (treatment + travel + stay): rupees forty-five lakh. Employer fully reimbursed.
Element | Position |
|---|---|
Gross Total Income for proviso threshold | Rupees six lakh fifty thousand -- below the rupees eight lakh threshold (post Finance Act, 2025) |
Travel element | Excluded -- gross total income of rupees six lakh fifty thousand is below rupees eight lakh |
Reserve Bank of India approval | Authorised Dealer bank cleared the medical-purpose remittance under Liberalised Remittance Scheme; certificate from approved Indian hospital |
Section 206C(1G) Tax Collected at Source | If Ms. Sneha remits the rupees forty-five lakh herself under the Liberalised Remittance Scheme for medical treatment and it is her only such remittance in financial year 2025-26: 5% on the excess above rupees ten lakh -- rupees one lakh seventy-five thousand on the rupees thirty-five lakh excess (2% from 1 April 2026, which would be rupees seventy thousand) |
Perquisite under section 17(2) | Nil -- treatment and stay excluded to the extent permitted by the Reserve Bank of India; travel excluded because gross total income does not exceed rupees eight lakh (clause (vi) of the proviso) |
Standard tax saving on the rupees forty-five lakh | Without the exclusion, the rupees forty-five lakh would be taxable as a salary perquisite, most of it at the highest slab rate |
The Tax Collected at Source layer is separate Tax Collected at Source under section 206C(1G) on a medical-purpose Liberalised Remittance Scheme remittance (5% of the amount above rupees ten lakh in the year; 2% from 1 April 2026) applies whether or not the underlying perquisite is excluded. It is creditable in Schedule TCS of the Income Tax Return -- not a final tax. For Ms. Sneha, the rupees one lakh seventy-five thousand flows back as refund (or reduces other tax liability) when she files the Income Tax Return. |
5. Section 80DDB Domestic Deduction -- The Self-Funded Alternative
Where the employee self-funds medical treatment (rather than receiving employer reimbursement), section 80DDB of the Income-tax Act, 1961 provides a deduction of up to rupees forty thousand (rupees one lakh for senior citizens) for treatment of specified diseases of the assessee or dependent. The list of specified diseases under section 80DDB (Rule 11DD) includes neurological conditions, malignant cancers, AIDS, chronic renal failure, hematological disorders, etc. This is parallel to (and far less generous than) the employer exclusion under clause (vi) of the proviso to section 17(2) -- but available where employer reimbursement is not, and only in the old regime.
6. Practitioner Documentation Checklist
- Medical documentation of the condition and the treatment abroad -- diagnosis and treatment plan.
- Estimate of foreign treatment cost from the foreign hospital.
- Travel itinerary and stay arrangements.
- Reserve Bank of India approval / Authorised Dealer bank Liberalised Remittance Scheme remittance certificate.
- Employer reimbursement letter and Form 12BA reflecting the exclusion under clause (vi) or (vii) of the proviso to section 17(2).
- Foreign hospital invoice and proof of payment.
- Section 206C(1G) Tax Collected at Source certificate (Form 27D) for the 5% Tax Collected at Source on the medical-purpose remittance.
- Income Tax Return reflection -- exclude perquisite from Schedule S; claim Tax Collected at Source credit in Schedule TCS.
7. Case Law Reference and Anticipatory Legal Analysis
Statutory Position: medical treatment abroad Clause (vi) of the proviso to section 17(2) of the Income-tax Act, 1961 excludes from 'perquisite' employer expenditure on medical treatment of the employee or a family member outside India, on travel and stay abroad of the patient, and on travel and stay abroad of one attendant. Expenditure on treatment and stay is excluded only to the extent permitted by the Reserve Bank of India; expenditure on travel is excluded only where the employee's gross total income, computed before including that expenditure, does not exceed the prescribed amount. That amount was two lakh rupees; the Finance Act, 2025 replaced it with 'such amount as may be prescribed' from 1 April 2026 (assessment year 2026-27), and Rule 3D of the Income-tax Rules, 1962, inserted by Notification No. 133/2025 dated 18 August 2025, prescribes eight lakh rupees. |
Prospective Interpretation -- The Finance Act, 2025 expansion and the section 206C(1G) interaction Two points. (i) The eight lakh rupees threshold applies from assessment year 2026-27 (financial year 2025-26) and governs only the travel element; treatment and stay abroad remain limited to what the Reserve Bank of India permits. (ii) Tax Collected at Source under section 206C(1G) on a medical-purpose remittance under the Liberalised Remittance Scheme (5 per cent of the amount above ten lakh rupees in a financial year, falling to 2 per cent from 1 April 2026 under section 394 of the Income-tax Act, 2025) applies whether or not the perquisite is excluded, and is claimed as a credit in Schedule TCS of the return. |
8. Key Takeaways
- Clause (vi) of the proviso to section 17(2) excludes employer-borne medical treatment abroad, and travel and stay abroad of the patient and one attendant, from the perquisite charge.
- The income threshold applies only to the travel element; it was raised from rupees two lakh to rupees eight lakh of gross total income from assessment year 2026-27 (Finance Act, 2025 and rule 3D).
- Treatment and stay abroad are excluded to the extent permitted by the Reserve Bank of India, with no list of specified diseases.
- Travel and stay expenses for employee, patient, and one attendant are covered.
- Section 206C(1G) Tax Collected at Source at 5% on medical-purpose Liberalised Remittance Scheme remittance above rupees ten lakh in a financial year (2% from 1 April 2026) -- creditable in the Income Tax Return.
- Section 80DDB provides a parallel but much smaller deduction (rupees forty thousand / rupees one lakh for senior citizens) for self-funded specified-disease treatment.
Disclaimer: This article is for general information only. It does not constitute tax / legal advice. Please consult a qualified Chartered Accountant or tax practitioner for advice specific to your circumstances. The legal position is current as of FA 2024 (No. 2) / FA 2025; subsequent amendments and CBDT notifications may modify the position.