A client sought clarity on whether reimbursements made to Sri-Lankan employees for medical-related expenses could be excluded from taxable employment income.They wanted to know whether employer payments for health-related costs qualified for exemption under employment income tax rules.
In Sri Lanka, Section 5(3)(c) provides that
‘In calculating an individual’s gains and profits from an employment for a year of assessment the following shall be excluded:
(c) a discharge or reimbursement of the person’s dental, medical or health insurance expenses where the benefit is available to all full-time employees on equal terms;’
This provision establishes a clear exemption, but only where specific conditions are met.
For the exemption to be valid, all of the following three requirements must be satisfied:
Discharge implies that the Sri Lankan employee has a legal obligation to pay the medical, dental, or health insurance expense, which is then settled by the employer.
Reimbursement means the employee has already paid the expense personally and is later repaid by the employer.
Payments that do not meet one of these two criteria may be regarded as additional remuneration and become taxable.
“A discharge or reimbursement of the person’s dental, medical or health insurance expenses where the benefit is available to all full-time employees on equal terms.”Speak to a Specialist
According to Sri Lankan legislation, the exemption applies strictly to:
Other wellness or healthcare-related benefits that fall outside these categories may not qualify.
The benefit must be:
If access to the benefit is restricted or applied inconsistently, the exemption may be disallowed.
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