Section 37(1) of the Income Tax Act Employer-Employee Insurance
Employee welfare is one of the prime responsibilities of an employer. It helps in the smooth functioning of the organization and also develops a productive, healthy work environment. Employer-Employee Insurance, commonly known as group health insurance is one such benefit offered by the employer to his employee. Section 37(1) of the Income Tax Act employer-employee insurance mentions the tax exemptions on the premiums paid toward this insurance plan. In the article below, we shall look in detail at these plans, eligibility, and their benefits.Read more
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Employer-Employee Cover Overview
Employee-employer insurance works on providing uniform health coverage to each member of the organisation. Such plans come complementary to the employee’s cost-to-company (CTC) since the company pays the premium on their behalf. In this manner, employees benefit from availing of such group medical or term insurance without bearing any cost on their salaries. Following are the types of plans covered under such agreement:
- Group term life insurance
- Group personal accident insurance
Eligibility for Employer- Employee Insurance under the Income Tax Act
- Sole proprietors, partnership firms, MSMEs, or any private or public company, can buy employee-employer insurance.
- For group medical insurance there should be a minimum of seven employees.
- For life insurance, the minimum number of employees should be ten.
- For the employees to be covered under this policy, individuals must be of legally employable age, that is, above the age of 18 to 65 years.
- NRIs and foreign individuals working at a company in India are also eligible for this plan.
Overall benefits of Employer-Employee Insurance under the Income Tax Act
There are several benefits of an employer-employee insurance plan, they are:
- Increased productivity and morale of the workforce
- Employees gain access to quality healthcare
- Attract and retain talent
- Help lower attrition rate
Tax Benefits of Employer-Employee Insurance
Section 37(1) of the Income Tax Act mentions the tax exemptions for employer-employee insurance. Let us look at these tax benefits from the employer’s and employee’s points of view.
From the point of view of the employee:
- Employees can earn multiple benefits depending on group term life, personal accident, or group medical insurance plans.
- Employees and their families get a cover, free of cost.
- The premium for this insurance is paid by the employer; however, the employee is eligible to claim tax exemption u/s 80C.
- Complete maturity proceeding is tax exempted under section 10(10D) of the income tax act.
- Family members get financial protection in case of the unfortunate event of the death of the employee.
From the point of view of the employer:
- As per Section 37(1) of the Income Tax Act, 1961, an organization can apply tax exemption for the premiums paid towards employer-employee insurance
- This premium can be declared under business expenses, thus increasing the monetary benefits
- Such corporate-sponsored employee insurance can reduce the attrition rate
Points to Remember under Section 37(1) of the Income Tax Act - Employer Employee Insurance
The deductions or tax exemptions are allowed based on the following conditions:
- The expenditure shown should have been already covered under sections 30 to section 36 of the Act.
- The expenses must be incurred in the applicable accounting year.
- The expenses should be based on the business activity carried by the assessee. The profits of the business must be incurred after the business is set up.
- The expenses should not be personal expenses.
- Expenses are not of a capital nature.
- The expenses should be incurred exclusively for the business
Simply put, employer-employee insurance as per the Income Tax Act, consists of many insurance plans including group medical insurance. This is different from keyman insurance, wherein, the employer can only purchase term life cover. Comprehensive group insurance covers the employee’s and their dependent’s life, and health along with offering tax benefits and lower attrition rates to the employer.
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