For tax year 2026-27, a private employer pays every employee a fixed medical allowance of ₹2,000 a month in cash, whether or not any medical expense is incurred. How is the allowance treated in the…

A fixed cash allowance is part of salary under section 16 of the Income-tax Act, 2025 and is taxable in full, whatever the employee spends it on. Section 17(2) excludes only specified medical facilities, such as treatment in the employer’s hospital or reimbursement of approved hospital or overseas treatment, not a cash allowance. The ₹15,000 annual exemption for medical reimbursement was withdrawn in 2018 and does not exist under the 2025 Act.