Introduction

An old saying by John Maxwell goes, “Teamwork makes the dream work”. A successful organization invests in its employees.

Recognition, appreciation, praise, empathy, and open communication contribute to a positive work environment and boost employee productivity. Furthermore, benefits like health insurance play a key role in securing employees’ loyalty. With the pandemic, it has even become mandatory for organizations to provide health insurance policies for their employees. These policies are called corporate health insurance or group health insurance.

The employees get health coverage to cover rising health costs and employers get a satisfied, productive, and motivated workforce. In addition, this policy also offers tax benefits. In this article, we will take you through various tax benefits of group insurance.

Tax benefits of group health insurance for employer

Group Health Insurance, as its name suggests, is an additional perk offered by employers to a group of employees, over and above their pay package. Since it is a voluntarily offered benefit, the premiums of this policy are also borne exclusively by employers. In some cases, the employee may also contribute to the premium. However, the responsibility of paying the premium is on employers. Only the employer can claim tax benefits if an employer pays the premium.

For employers, this premium paid for the benefit of employees is a business expense. Thus, the employers need to show the same in the profit and loss account of the company. The advantage is that it will help them reduce their tax liability.

Since employees enjoy the insurance benefits, the premium paid on such insurance is termed a fringe benefit. Fringe benefits are the benefits offered by an employer to its employees like retirement plans, health insurance, paid medical leaves, and more. These are taxable as business expenses. Thus, an employer can claim a deduction under Section 17 of the Income Tax Act,1961. This benefit is deemed as “Profit in lieu of salary”. It does not matter how much premium is being paid. The entire amount can be claimed as a business expense.

Tax benefits of group health insurance for employees

As mentioned above, when the employer bears the entire premium for the health insurance, only they can take the tax benefit. However, in some instances, employees can also avail tax benefits. Now, if an employee purchases health insurance, it is not a business expense for them.

Thus, employees can avail of the tax deductions on the premiums paid under Section 80D of the IT Act,1961. As per Section 80D, an individual can claim tax benefits as under :

1. For premiums paid on medical insurance policies taken for self, spouse, and dependent children, an individual can claim a deduction for up to Rs 25,000 per financial year.
2. For medical policies taken for parents:

• If parents are less than 60 years of age, an additional deduction of Rs 25,000 can be taken.
• If parents are more than 60 years of age, an additional deduction of Rs 50,000 can be taken.

3. If the individual or spouse and parents are more than 60 years of age, you can avail of a maximum deduction of Rs 1,00,000.

Now, let’s talk about different situations where the employees can take these above tax benefits. Following are the different cases :

1. Where the employee pays the portion of the premium

• There may be cases where the employer does not pay the entire premium or pays a majority of it. The employee pays the remaining balance. In such cases, the employee is allowed the tax deduction for the portion of the premium paid by them.

2. Where the employer bears the group policy premium, but the employee takes additional medical coverage 

• In such a case, since the group policy premium is paid entirely by the employer, the employee does not get the tax benefit. However, the employee has topped up the insurance with extra coverage and is paying the premium for the same. For this, the employee can take a tax deduction under Section 80D.

3. Where the employee pays the entire premium

• It is a simple rule of tax. Whoever pays for the benefit, gets the tax advantage. Thus, since the employee is paying the whole premium, they are entitled to a tax benefit for the same. However, the tax deduction cannot exceed Rs 1,00,000.

In a nutshell

After reading the above article, you will understand the different tax benefits available to both employers and employees under group health insurance. Rising healthcare costs and unknown diseases have made health insurance a necessity in recent years.

Employers can take a huge burden off employees’ shoulders by offering these benefits. Employees can always increase the coverage and add more benefits. Today, employers can even customize these plans to suit the needs of their employees. This makes these plans even more valuable. Like at Plum Insurance, experts provide you with medical, healthcare, and wellness plans that suit your employee’s requirements.