Are medical malpractice settlements tax-free?
Any act of negligence or omission on the part of a medical professional that results in physical harm or trauma to a patient is medical malpractice. This also includes providing substandard quality of treatment.
Some instances of medical negligence are:
Failure to give correct medical advice
Improper administration of medicines
Wrong or delay in diagnosis
Performing improper or inappropriate surgery
Leaving behind a foreign object like a bandage or cotton inside the patient’s body after a surgery
What are the actions in case of medical malpractice?
In a case of medical malpractice, the doctor is held liable once the patient proves the breach of duty.
Victims of medical malpractice can file lawsuits as per the provisions of Indian law and the Constitution.
Article 21 – This article provides the citizens of India with a guarantee of the right to life. The right to health is an integral part of the right to life. It is the government’s responsibility to provide good healthcare facilities. Any failure to do so is a violation of the right to life.
Article 32 – This article provides the Right to Constitutional Remedies. A citizen has the right to move the court in case of violation of fundamental rights. Therefore, this article provides that in a case of medical negligence the victim can file a lawsuit against a medical professional/s or the hospital.
Is the monetary compensation taxable?
A doctor or medical professional found guilty of medical malpractice can face disciplinary action and may also need to pay monetary compensation.
The medical malpractice settlement is financial support to the victim’s family members and reduces their plight to some extent.
Medical malpractice settlements have made authorities and professionals in the country more cautious about healthcare facilities.
Additional Read: When does a claim occur under Doctor professional indemnity?
Kolkata hospital case
The compensation paid in a case of medical malpractice is not taxable under income tax laws as it is not an income.
Let’s look at a case from October 2013 to understand this further.
In this case, the Supreme Court declared the highest-ever compensation for medical malpractice. The court told Kolkata’s AMRI hospital to pay Rs 11.5 crore for the wrongful death of Anuradha Saha. The case was filed against the hospital and three reputed doctors of Kolkata.
However, the hospital did not pay the entire amount to the deceased patient’s family. It made a deduction of Rs 1.06 crore as Income Tax in the form of Tax Deducted at Source (TDS).
Saha’s husband then filed a petition of contempt against the hospital. The court found the deduction of TDS as unlawful. A special bench of the Supreme Court condemned the hospital.
The apex court said the compensation cannot be treated as an income for the family. It asked the hospital to pay back the deducted amount. The hospital was also directed to clear all payment discrepancies within two weeks.
The medical malpractice settlement is an attempt to fill up the vacuum in the lives of the deceased’s family. But that can never be filled up in reality. Thus, it is not just unlawful but also unethical and inhuman to consider this amount as an income and impose a tax.
In a similar way, the settled claim is reimbursement of their expenses and not taxed.
The doctors’ liability insurance saves medical professionals from litigation related to medical malpractice. The insurance, also known as doctor’s professional liability insurance, provides professional indemnity for doctors.