What are the Tax Benefits of Group Health Insurance?

A group health insurance provides financial aid at the time of emergency related to health. Among various private and public sector companies, it is very popular - majorly because of its several benefits. Out of all the other benefits, the tax benefit is the prominent one. It can be availed by both the employer and the employee. Let us now understand in detail how tax is exempted under group health insurance.

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Income Tax Exemption Under Group Health Insurance for Employers

Employees who work at employee-centric companies are most likely to get an offer of group health insurance as a prerequisite. In this case, the benefit is called 'profit in lieu of salary.' Most of the time it is the employer who pays for the group health insurance premium on behalf of the employee. 

Also, it is to note here that after the first wave of COVID-19, the government of India issued guidelines that those companies who will resume work post the lifting of nation-wide lockdown, must offer group health insurance to their employees. Those will do so will be provided with the group health insurance tax benefit.

Group Health Insurance for Employers: Tax Benefits

It is a business expense for the company when the employer pays the group health insurance premium to insure the employees. This expense is to be shown in the company's 'profile and loss account' after which it is considered to be eligible for the tax benefits as per the Income-tax act 1961. 

As per the Insurance Regulatory and Development Authority of India (IRDAI) Act, 1999, the tax benefit availed from group health insurance is considered as 'employer entitlement.'

In case the employer and the employee both pay for the group health insurance's premium then the tax benefit will be given to both of them as per their contributed proportion.

Which Employers Can Avail Tax Benefits?

Following is a list of types of employers which can avail tax benefits by offering group health insurance to their employees:

  • Start-up ventures
  • Private companies
  • Sole proprietor
  • Partnership firm
  • Public companies
  • Micro, small and medium enterprises

Why Should Employers Offer Group Health Insurance?

Whether it is a small-scale enterprise or a big company, the employer should buy a group health insurance plan for their employees to offer preventive health care coverage, comprehensive health insurance, and wellness benefits. This act works in the favour of the company as the employees feel valued. Following are the reasons that reflect the advantages of offering group health insurance to the employees:

  • Increase in the productivity
  • Decrease in absenteeism
  • Increase in the value of goodwill
  • Employees become more loyal towards the company
  • Tax benefits

Group Health Insurance for Employees: Tax Benefits

Usually, the employees do not avail of the tax benefit because the premium for the group health insurance is entirely paid by their employer. 

However, in some cases, the employees can avail tax benefits under section 80D of the Income Tax Act 1961.

It is to note here that the tax benefit varies and it depends on the proportion of the premium that the employee has paid. 

Following are the 3 scenarios where the employee can avail the tax benefits:

  • When the employer pays the entire premium, then only the employer is eligible to receive the tax benefit.
  • When the majority of the premium is paid by the employer and the employee pays the rest of it, then the tax benefits are received as per the contribution towards the payment. 
  • When the employer pays the entire premium and the employee pays for the additional premium by buying a top-up plan to enhance the overall coverage of the policy, then the employee is eligible to avail tax benefit for the additional part that he/she has paid.

Advantage of Group Health Insurance for Employees

Following are the advantages of group health insurance policy for the employees. It is to note here that to avail specific advantages, a specified coverage has to be decided:

  1. Affordability: Group health insurance is pocket-friendly for the policy buyers as compared to the individual or family health plans, it is because. the premium is shared by the group of employees.  
  2. Employees Feel Valued: When the company offers group health insurance to their employees, the employees feel valued and appreciated. This ultimately leads to an increase in their productivity and influences them to stay loyal to the company.
  3. More People - Higher Advantages: To get better and higher coverage out of group health insurance the policyholder can form a large group by adding more people. The higher advantage may include, better coverage for hospitalization expenses, for pre-existing diseases, and more.  
  4. Family Protection: Many group health insurance policies offer coverage inclusion for employees' family members as well. This safeguards the dependents of the employee by providing financial aid in times of need.  
  5. Easy to Claim: A group health insurance is easier to get a claim form as compared to other health plans. The only requirement from the employees' side is the relevant bills. Because a large number of employees are covered under the plan, the employer ensures that the claim request gets approved by the insurer. This plan also comes with the cashless settlement option. 

The Final Word

Group health insurance is a good option for both employers and employees. However, it shouldn't be misunderstood as an option to save taxes, because the plan provides some extra benefits as well which as equally prominent. Also, in India, the rising cost of the health care industry is not hidden from anyone, hence group health insurance acts as a shield to protect against any eventuality.

Written By: PolicyBazaar - Updated: 02 September 2021

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