Group health insurance offers significant tax advantages for employers and employees. Employers can fully deduct premiums as a business expense, while employees can claim Section 80D deductions on their contribution under the Old Tax Regime. Employer-paid premiums are not taxable as salary income.
Companies and firms across the world aim to recruit the top talent available in the market. To engineer that, employers provide competitive pay and an amazing corporate wellness program. One of the most popular employee benefits is Group Health Insurance.
Also read: Guide to Group Health Insurance
Employers can provide employee benefits insurance to all their employees with Group Health Insurance. This insurance can be implicated in the income tax, related to Section 80D and Section 17 of the Income Tax Act, and employees and employers can avail tax benefits. However, there are certain terms and conditions which must be met for tax exemption.
Group health insurance is a single policy that covers all employees of an organisation under one umbrella. Employers either bear the full cost of premiums or share it with employees.
If the employer pays all the premium amount in lieu of the employees, this is known as a business expense by the company and the employer shows this expense as a profit-loss account and is therefore eligible for tax benefits according to the Indian Income Tax Act, 1961.
Example: If a company spends ₹5 lakh annually on GHI premiums, this entire amount can be deducted from its taxable income.
Also read: Minimum employees required for Group Health Insurance
Types of Employers that can avail tax benefits
Note: If both, the employer and the employee, pay for the premium insurance, then the employer can gain tax benefit only for the contributed amount and not for the amount paid by the employee.
Other reasons why employers should offer Group Health Insurance:
Also read: Benefits of Group Health Insurance Policy
Section 80D of Income Tax Act
According to this act “Every individual can claim a deduction from their total income for medical insurance premiums paid in any given year under Section 80D.”
In certain instances where the employees also contribute to the premium payment, they can avail tax benefits as per section 80D of the Income Tax Act. If you are paying a premium for you, your spouse and your dependent children then you can claim a tax deduction of up to ₹25,000 per year.
Additionally, you can claim a tax deduction of up to ₹25,000 every financial year if you include your parents in the policy too. However, if your parents are above 60 years of age, then you can claim up to ₹50,000 and if you and your parents are both above 60 years of age, then you can claim up to 1 lakh. This is because insurance premiums are higher for people of older age.
The benefit will depend upon the amount paid in premium and the applicable tax laws at the time of tax computation. This varies as per government regulations surrounding tax structure/benefits announced within the annual budget.
There are different possible instances for employees when it comes to the premium paid for Group Health Insurance. Each instance has a different tax implication.
Case A
When the employer pays the entire health insurance (there is no contribution from the employee)
In this case, as the employer is paying for the policy, therefore only the employer will avail tax benefits and not the employee.
Case B
When the employer pays for a certain amount and the remaining is paid by the employees. In this case, the employee can avail tax benefits in the proportion to the amount paid.
Case C
When the employer paid for the premium amount and the employee pays additional top-up to increase the sum of the plan. In this case, as the employee is paying only for the additional top-up, therefore the employee will avail only additional top-up benefits.
All the cases are subjected to the Income Tax Act.
Other advantages of Group Health Insurance for Employees:
No. Section 80D deductions are available only under the Old Tax Regime.
Under the New Tax Regime, most exemptions and deductions including Section 80D are not applicable. This means employees who opt for the New Tax Regime cannot claim tax deductions on health insurance premiums paid under Section 80D, even if they contribute toward their group health insurance policy.
However, this does not impact employers.
For employers, offering group health insurance continues to be a tax-efficient employee benefit under both tax regimes.
For employees, the tax advantage under Section 80D depends entirely on whether they choose the Old Tax Regime while filing their income tax returns.
Tip: Employees should evaluate both tax regimes carefully before opting in, especially if they contribute toward health insurance premiums or include parents under their coverage.
Pazcare offers group health insurance for enterprises of as low as 7 employees, with the best prices in the market. Also, we provide additional benefits like mental wellness, unlimited doctor consultations, super-top, health checkups, laboratory allowance and more. Employers will get a sophisticated dashboard to easily manage and track the group health insurance policies and all other employee benefits provided. And employees can manage their benefits with our Pazcare app.
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Employers can claim the premium paid as a business expense under the Income Tax Act, reducing taxable income. Employees can claim deductions under Section 80D if they contribute to the premium.
Yes, according to the Income Tax Act of 1961, any amount spent on health insurance is exempted from tax.
Yes, employers can claim tax deductions on the premiums paid, and employees can avail of tax exemptions if they contribute to the premium or opt for top-up plans.
Yes. If employees pay part or full of the premium, they can claim deductions under Section 80D within the prescribed limits.
No. TDS is not deducted on health insurance premiums as they are not considered income but an expense.
Employers can claim GST input tax credit on group medical insurance only if it is mandated by law for their industry.
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