Stipend for Health Or Group Health Insurance to Employees. What’s Better?

When you run a business or a big company, one of the most important things for you is that your employees keep workflow constant and stay consistent in their job. One of the most important aspects that come in line to maintain consistency is good health. But medical emergencies come unannounced and it is important to be prepared for them. This is where a group health insurance policy comes in handy.

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Although big organizations usually provide health insurance to their employees as well as their families to keep them tension-free in case of medical expenses, what about those entrepreneurs who have just started their new business and cannot afford to offer healthcare plans. So what we are going to talk about here is that would it be better to provide a stipend to the employee so that they can purchase a healthcare plan for themselves or would it be better to provide them a healthcare plan?

The Downside of Providing Stipend For Health Insurance

Stipend for health insurance is an extra amount that the employer pays to the employees with their salary that they can utilize anyway they want whether medical expense or anything else. While the employer would ask the employees to spend the amount on healthcare but it depends on them how they want to spend it. Also, employees do not have to provide any proof of purchasing a healthcare plan.

Apart from this, if the employer provides a stipend for a healthcare plan then they will have to pay the payroll tax on reimbursement. This is one of the downsides of providing a stipend to the employees. For example, Aman is an employer and provides a stipend to his employees for healthcare. Rohan is one of the employees and he spent that stipend on something other than health insurance. Rohan fell sick and had to go through a medical examination and some tests which could have been covered by the health insurance and the purpose of providing a stipend for financial medical coverage fails here.

The benefit of Providing Group Health Insurance To Employees

Since the purpose of providing a stipend fails when the employees spend that amount on something other than a health care plan, it is beneficial for employers to provide a group health plan to the employees. It will not just provide financial aid to the employees at the time of unforeseen medical expenses but also generate a sense of care and protection. When an employer provides a healthcare plan to the employees, it makes them feel valued and this reflects in their work. Apart from this, providing a healthcare plan attracts good employees as well as benefits on tax.

*Tax benefit is subject to changes in tax laws.

According to the Income Tax Act, the amount an employer pays as a healthcare premium on behalf of the employee will be considered as profit instead of salary. There can be three kinds of scenarios for the tax benefits in the case of group healthcare premium. Let us tell you about them.

Scenario One

When the employee has to a partial amount of the insurance premium, the employee can get a tax deduction under the Income Tax Act Section 80D. The tax benefits should not cross Rs. 1 Lakh in a financial year.

Scenario Two

When the employee has to pay the whole premium amount, the employee can claim the whole amount under Income Tax Act Section 80D and the total amount should not cross Rs. 1 Lakh.

Scenario Three

When the employer has to pay the entire premium amount, the employee cannot claim for any tax benefit. Only the employer is eligible to file a claim for the paid premium amount.

Keeping all these scenarios in mind it would be better for the employer to provide a group health insurance and it is up to the employer if he/she wants to pay the premium amount in full or divide it between him and the employee or make the employee pay the full amount.


Since the main purpose is to provide financial aid to the employee at the time of medical emergency. Providing stipend seems to fail in it. Also, the employer will have to pay the payroll tax for reimbursement whereas if the employer provides the group health insurance plan to the employees, he/she can claim for tax benefit under the Income Tax Act Section 80D. It is also advised to the buyer to purchase the insurance policy online to get the maximum benefits, offers and discount. If you purchase the policy online then you can understand every little detail related to the policy and calculate the premium amount as well. We have told you some of the important things related to providing a stipend and providing policy now the choice is yours.

Written By: PolicyBazaar - Updated: 26 August 2021

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