Tax Benefits of Group Health Insurance for Employers and Employees

Tax Benefits of Group Health Insurance for Employers

The group health insurance premium paid by the employer is deemed to fetch benefits for the organisation. The premium is considered as an expense of business. The employer records this expense in the profit-loss account, making them eligible for tax benefits as per the Indian Income Tax Act, 1961. Therefore, an employer paying group health insurance premiums may fetch tax benefits on the entire amount.

1. Employers Eligible for Tax benefits Include:

   • Sole Proprietorships
   • Partnership Firms
   • Public Companies
   • Private Companies
   • Start-ups, mid-level, and enterprise-level companies

   Note: If both the employer and the employee contribute to the premium, the employer can only claim tax benefits for their portion of the contribution.

2. Additionally, Offering Group Health Insurance can:

   • Boost employee loyalty
   • Improve productivity
   • Reduce employee absenteeism
   • Enhance goodwill
   • Provide tax advantages

How it Works?

Let us discuss how it works in order to better understand how are group health insurances taxes deductibles:

Salary, perquisite, and profit in lieu of salary come under section 17 of the Income Tax Act of 1969. Section 17 states that the premium paid by the employer is a benefit for the organisation. Such premiums fall under the category of profit in lieu of salary. It means that the firm or company may claim the premium amount as an expense in the balance sheet or profit and loss account.

Section 17 further allows public or private companies, firms, or sole proprietorships to fetch this benefit.

The premium of group health insurance is an additional benefit provided by the companies to their employees. Therefore, the employer may avail of tax benefits and deduct the amount from the taxable income. Hence, the group health insurance benefit helps the company in order to reduce tax liability.

Are Group Health Insurance Tax Deductibles for Employees?

Tax Benefits of Group Health Insurance for Employees under Section 80D of the Income Tax Act:

According to Section 80D, individuals can claim a deduction from their total income for medical insurance premiums paid in a given year.

• If an employee pays premiums for themselves, their spouse, and dependent children, they can claim a deduction of up to ₹25,000 per year.
• Including parents in the policy allows for an additional deduction of up to ₹25,000 annually.
• If parents are above 60 years old, the deduction can increase to ₹50,000.
• If both the employee and parents are above 60 years old, the deduction can be up to ₹1 lakh.

Tax benefits depend on the premium amount and prevailing tax laws, which may vary based on government regulations.

Different scenarios for employees regarding premium payment:

• Case A: When the employer covers the entire health insurance premium, only the employer receives tax benefits.
• Case B: If the employer pays a portion and the employee contributes, the employee can claim tax benefits proportionate to their contribution.
• Case C: If the employer pays the premium and the employee adds a top-up, the employee receives benefits only for the additional top-up.

*All cases are subject to the Income Tax Act.

Other advantages of Group Health Insurance for Employees:

• Comprehensive health coverage at no cost.
• No waiting period for pre-existing conditions.
• Policy customization with add-ons and top-ups.
• Inclusion of family members like parents, children, spouse, and in-laws in coverage.

Conclusion

Group Health Insurance not only benefits employers by providing tax advantages and enhancing employee loyalty and productivity but also offers significant tax deductions for employees under Section 80D of the Income Tax Act. This essential coverage promotes employee well-being, reduces absenteeism, and provides peace of mind with comprehensive health coverage for themselves and their families. Group Health Insurance stands as a valuable asset in fostering a healthy and supportive work environment while also helping individuals mitigate financial burdens associated with healthcare expenses.

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