Tax Benefit of Group Health Insurance for Employers & Employees

Employers who provide a group medical insurance policy can enjoy several tax benefits. One of the primary benefits is the group insurance deductions in income tax. The tax benefits availed from group health insurance are considered employer entitlement as per the Insurance Regulatory and Development Authority of India Act, 1999.

The premiums that an employer pays towards group health insurance premiums are considered business expenses.

This means they are deductible from the company’s taxable income. As a result, companies can lower their overall tax liability by reducing their taxable income.

Also, if both employer and employee pay the group health insurance premium, then both parties are entitled to a group insurance deduction in income tax.

Employees also gain substantial group health insurance tax benefits. When an employer pays for a group medical insurance policy, it is not considered as taxable income for the employee. This means employees receive healthcare coverage without increasing their tax burden.

Moreover, if employees also contribute to the premium for the group medical insurance policy, this amount is tax deductable. This provides employees with additional financial relief.

The Goods and Services Tax (GST) also plays a role in the cost of group health insurance. When companies purchase a group medical policy, they need to pay 18% GST on the premiums. Hence, the implementation of GST has led to a surge in the premium costs of insurance policies.

However, businesses can claim this GST as tax credit. It reduces the effective cost of the insurance policy. If both employers and employees pay the premiums for group health insurance, they both can claim tax savings under Section 80D of Income Tax Act.

This section allows taxpayers to claim a tax deduction for the total premium they paid to the insurance provider.
GST rates for insurance are applied as an indirect tax on top of the actual service value.

Employees can get group health insurance taxable benefits up to ₹25,000/₹50,000 as per the policy terms and the premium they paid.

Small Businesses: Small businesses can offer group health insurance to their employees. This can improve employee satisfaction and also get tax deductions on premiums.

Medium-Sized Enterprises: Medium-sized enterprises can benefit from group health insurance by attracting and retaining top talent from the industry. The tax deductions help reduce overall business expenses.

Large Corporations: Large corporations often provide comprehensive health benefits. The tax savings from the group health insurance deductions can be a lot. It may lower the company's taxable income significantly.

Startups: Startups can use group health insurance as an advantage to attract top talent. The tax benefit helps manage costs while offering this valuable benefit to employees.

Non-Profit Organisations: Non-profit organisations can offer group health insurance to their employees. The tax deductions can help them manage their limited budgets more effectively.

Government Agencies: Government agencies at various levels can offer group health insurance. The tax deductions can reduce the financial burdens on such agencies.

Manufacturing Companies: Manufacturing firms can provide group health insurance to their workforce. The tax benefit can help reduce the cost of providing comprehensive health coverage.

Understand the Deductions: Accurately record all the premiums you have paid towards the group health insurance and accordingly deduct them from the taxable income.

Claim GST Tax Benefit: Make sure to claim the GST you have paid on the group health insurance premiums as a tax credit. This can significantly reduce the overall cost of providing health insurance benefits to your employees.

Communicate Effectively with Employees: Inform your employees about the tax deductions as part of their health coverage. This can increase the perceived value of the benefit they are getting and enhance employee satisfaction.

Offering group medical insurance policies under Business Insurance in India provides numerous tax benefits for both employers and employees. Employers can enjoy significant tax deductions, while employees can benefit from tax-free coverage.

To fully maximise a group plan's benefits, it's essential to fully understand and claim all applicable deductions and GST credits. This way companies can significantly reduce their tax liabilities while also ensuring their employees are taken care of.

Tata AIG offers competitive rates and excellent support for group medical insurance policies. We make it easier for companies to provide valuable health coverage to their workforce.

Are group health insurance premiums taxable?

No, group health insurance premiums paid by employers are not taxable income for employers. This provides employees with tax-free health coverage.

Are group life insurance premiums tax deductible?

Yes, group health insurance premiums paid by employers are generally tax deductible as these are considered business expenses. This helps reduce the company’s overall taxable income.

Is company medical insurance taxable for employees?

No, company medical insurance is not considered under taxable income for employees. This allows employees to receive healthy coverage without increasing their tax burden.