Taxable benefits of group insurance scheme

Taxable benefits of group insurance scheme 

Group health insurance covers a set of people associated with one identifying unit. Examples of this could be members of a society, club, a professional association, or they could also be employees of a business organisation.

Due to this grouping, there is a price benefit for both the insured and the insurance company. Group health insurance provides a more extensive business scale for the insurance company and allows for lower prices for the clients.

Companies generally offer group health insurance schemes as part of the benefits package to the employees. An employee health plan is one of the best ways of showing that you care for your employees.

How important is a group mediclaim?

In today’s competitive world, employers place significant value on the well-being of their personnel. Medical expenses are generally very high, and any emergency or medical contingency can set back an individual by a princely sum. Health insurance provides tranquilly and allows individuals to focus on other productive matters without undue worries.

Most employers today prefer to offer group health insurance to their staff to ensure that their mental and physical well being is covered in case of any eventuality. Besides ensuring adequate medical care for the team, health insurance also accords taxable benefits to the organisation buying the scheme.

Taxation benefits of health insurance

When an individual buys health insurance for self or family, the person is eligible for tax deduction under section 80 D of the Income Tax Act of India. This tax allows for a deduction of up to Rs. 25,000 per year towards the premium paid. The condition mandates that this premium can be for oneself, spouse and dependent children.

 If an individual buys health insurance for one’s guardians or parents, an additional deduction of rupees twenty-five thousand per financial year can be availed by the assessee. 

Taxation benefits of group insurance

In the case of a corporate health plan, the taxation benefits have different treatment as per the Indian Income Tax provisions.

To properly understand the tax benefits, we need to determine who has paid the premium for the insurance. The different possibilities could be as follows:

  • Premium is paid entirely by the company.
  • Premium is paid partly by the company and the employees.
  • Premium is paid entirely by the employee.

The tax benefits differ in all the above three scenarios. In most cases, the company usually pays the premium on behalf of the employees. Such an amount paid is defined as ‘profit in lieu of salary’. This premium paid becomes a part of the total compensation package paid to the employee – it is part of the additional benefits provided to the employee. Consequently, this amount is considered a business expense, and the company can avail tax benefits on this amount by claiming the total amount paid.

Provisions of the Income Tax Act: Explained

As per Section 17 of the Income Tax Act 1961, the total amount paid by the employer towards group policy can be claimed as business expenses.

 In such a case, since the employee is not contributing towards the premium payment, then the employee cannot claim any tax deduction on this premium amount. The sole benefit of this can only be claimed by the company paying the entire premium.

There is no upper limit for claiming this expense, and the entire amount spent can be shown as expenses and tax benefits claimed accordingly.

What are the tax implications when the premium is jointly paid?

 In those cases where the employer and the employee jointly pay the premium, the employer can claim only that amount paid from its account as a business expense. The business owner can show the premium expense as a separate line item in the Profit and Loss Account of the company.

For the contribution paid by the employee, that much amount can be deducted from the tax amount payable, subject to an upper limit of Rs. 25,000. Any other premiums paid by the individual towards health insurance need to be cumulatively considered for this tax deduction calculation.

What are the tax implications when the employee pays the premium?

 If the premium is paid entirely by the employee, then the company has no right to claim any amount of this premium towards business expenses.

Each employee can calculate their premium payments and claim the same under Section 80 D of the Income Tax Act.

What types of entities can avail of tax benefits under group health insurance plans?

Practically, all types of business companies can show the amount paid for group mediclaim as a business expense. These could be as elucidated below:

  • Proprietorship firms.
  • Partnership firms.
  • LLC firms.
  • Public companies.
  • Private companies.
  • Start-up ventures.
  • Cooperative societies.

Government outlook

The Government’s outlook towards health insurance is positive too. The Government of India has directed via their 2020 guidelines that companies that have resumed work post the Covid-19 related lockdown need to provide group health insurance coverage to their employees.

Parting thoughts

Group insurance provides a lot of benefits to employers as well. Providing group medical healthcare sends a solid signal that the company values their human resources. It increases employee loyalty and results in better productivity.

Plum Insurance is a leading player in the employee benefits space, providing affordable healthcare and making your health insurance purchase extremely simplified.

So why delay your group mediclaim purchase any longer? Please choose the right insurance provider and show your employees that you care for them.

Related posts