In India, if relatives, friends, or charitable trusts present you with money to meet some of the medical or hospital expenses, then such amount will not be treated as taxable income as per the Income Tax Act. It is especially when the aid is rendered by way of gift or voluntary contribution for treatment and not as payment for some service or benefit.
Gifts given by relatives are exempt entirely
Income Tax Act defines "relatives" as in-laws, spouse, children, parents, siblings, and in-laws. Whatever the amount comes from them is completely tax-free regardless of how small it is, if it's a genuine gift and not based on any business or agreement. So, if your brother presents you ₹2 lakh to settle a hospital bill, you don't need to pay tax for this.
Relative received gift is exempted up to ₹50,000
Whereas if you are getting some amount from a relative or friend stranger, the same can be considered as a gift under Section 56(2)(x) of the Income Tax Act. Under this, if the total amount of money from all relatives is more than ₹50,000 in a financial year, the overall amount can be charged with tax. But if the aid or donation is for medical emergencies, you may be able to get away with saying it's not a taxable gift, especially if it's properly documented as being medical aid.
Charity donations and crowdfunding are usually exempt
When individuals raise money for medical bills from charities or crowd fundraising, the money is usually tax-exempt, provided that the money is spent directly on the patient's medical bills and not saved to spend on personal needs. Tax authorities, however, recommend maintaining open books of accounts on how money is raised and spent, including hospital receipts, donation accounts, and bank accounts.
Maintain proper records for all significant amounts
Even if the funds are exempted, keep a record of hospitalization, hospital bills, and correspondence with donors or relatives. Should the taxman pay a visit in the future for an inquiry, these records will serve to prove that the money was not income but relief aid.
Genuine medical relief is exempted from tax, but be careful
Monetary support to cover hospital expenses, whether from relatives, friends, or charity, is generally exempted. But if the amount is significant or from relatives other than the family, make sure it's properly recorded as medical aid. In the case of doubtful situations, consult with a tax advisor to avoid complications at the time of filing ITR.
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