Are medical malpractice settlements tax-free?

Medical malpractice is said to occur when doctors, hospitals or other medical professionals perform any negligent acts or omissions that can result in injuries or harm to a patient. In other words, medical malpractice is the result of the healthcare professional’s omitting to take appropriate action, or providing substandard quality of treatment which can lead to losses or damages to the patient.

Some examples of medical negligence are :

  1. Lack of proper medical advice.
  2. Improper administration of medicines.
  3. Wrong diagnosis or delay in the diagnosis.
  4. Performing improper or inappropriate surgery.
  5. Leaving behind a foreign object like a bandage or cotton inside the body of the patient after surgery. 

Actions against Medical malpractice

In any case of medical malpractice, the liability of the doctor would arise when the patient has suffered damages and is able or ready to prove that there has been a breach of duty by the doctor, hospital or medical professionals.

 

The victims of medical malpractice can file lawsuits against the medical malpractice faced. The Constitution of India has provisions that would help the victims of medical malpractice.

 

  1. Article 21Article 21 provides the citizens of India with a guarantee to the right to life. The right to health is an integral part of the right to life and it is the constitutional right of the Government to provide good health care facilities failing which is a violation of the right to life.

 

  1. Article 32Article 32 helps in providing the right to Constitutional remedies. The citizens have the right to move to the court in case of any violations of fundamental rights.  A victim of medical negligence can file a lawsuit against the medical professionals or the hospital under this Article of the medical negligence laws of India.

 

Monetary compensation for medical malpractice and what is the taxability

 

In case a lawsuit is filed by a victim of medical malpractice, there can be punishments for the offenders i.e. doctors or medical professionals. These punishments can include criminal offence, monetary compensation and disciplinary actions against the offenders in certain cases.

 

When monetary compensation is being paid by a doctor, medical professionals or the hospitals to the victim, it is said to be a medical malpractice settlement. Through this malpractice settlement the family members of the victim get financial support and this would reduce their plight or distress up to an extent. Moreover, due to medical malpractice settlements medical authorities and professionals in the country become cautious about the health care facilities being provided to the common people.

 

Additional Read:  When does a claim occur under Doctor professional indemnity?

 

According to the Income Tax laws, the compensation which is obtained by a victim of medical malpractice or by the family members of a deceased or victim of medical malpractice is not taxable as it cannot be considered as income. In October 2013, the highest-ever compensation for medical malpractice was declared by Apex Court for the wrongful death of patient Anuradha Saha in the AMRI hospital of Kolkata. The court declared a compensation of Rs. 11.5 crores including interest against the AMRI hospital and three reputed doctors of Kolkata. However, the hospital did not pay the entire amount to the deceased patient’s family as it has made a deduction of Rs. 1.06 crores as Income Tax in the form of “Tax Deducted at Source” (TDS).

 

When the full amount was not paid by the hospital, the deceased patient’s husband filed a petition of “contempt” against the hospital. It was found that the hospital had deducted the amount as TDS which was unlawful. This act of the hospital was highly condemned by the special bench of justices of the Supreme Court. The Apex court took the matter quite seriously as this amount of compensation cannot be treated as an income for the family. The hospital was directed to pay back the deducted amount and clear off all payment discrepancies with the complainant within two weeks.

 

Hence, medical malpractice settlement is an effort or an attempt to fill up that vacuum in the lives of the deceased victim’s family – which can never be filled up in reality. Thus, considering this as an income and imposing a tax on that is not only unlawful but also unethical and inhuman.

 

Doctors and medical professionals can purchase doctors liability insurance which would be helpful in providing coverage during such litigations related to medical malpractice. This insurance is otherwise known as Doctors professional liability insurance and would be helpful in providing professional indemnity for doctors.

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