In recent times, there has been a surge in competition amongst companies to hire and retain the best talent. As employees are fundamental to organisational growth, securing their health with the help of group health insurance is one factor that organisations follow religiously.

An organisation’s employees are considered one of the most crucial pillars to its competitive success, and accordingly, they are offered some incentives. Companies offer paid leaves, non-monetary gifts, company merchandise, outdoor team building activities, etc. These benefits may vary from company to company. Some companies provide basic benefits such as health insurance to their employees.

Organisations benefit the most from group medical insurance as it helps them save tax. But more importantly, offering such a policy provides a sense of security to the employees, motivating them to commit to their role and facilitate long-term organisational goals. 😊

In this article, we will understand how section 80D of the Income Tax Act, related to the deduction for health insurance premium, works in this regard. Further, we will discuss the tax benefits associated with group health insurance for both employers as well as employees. 🧐

Section 80D of the Income Tax Act – Deduction of health insurance premium

This section of the Income Tax Act explains the clause of the deduction for the premium amount paid by an individual for the health insurance of their family and self.

The distinguished clauses under this section are as follows:

  • If an individual has taken a policy and paid an insurance premium for themselves, their spouse, and dependent children, they can claim a deduction of Rs. 25,000.
  • Further, the allowable limit for claiming an additional deduction if the premium has been paid for parents’ health insurance is an additional amount up to Rs. 25,000, considering the parents are less than 60 years of age. If the parents are more than 60 years of age, the tax deduction benefit increases up to Rs. 50,000.
  • In cases wherein both the individual and parents are either 60 years of age or above, the maximum deduction available for claim under section 80D is up to Rs. 1 lakh.

As we can understand from the above points, the clauses have no mention of the tax implications related to group health insurance. This is where exactly most employers land up in a state of confusion. 😕

They often wonder how bearing the premium cost for their employees’ medical insurance would benefit them in a larger scheme of things.

Let us now deep dive into the tax benefits to employers and employees.

Tax benefits for employers

In the simplest words, premium costs paid by the employer on behalf of their employees can be entirely claimed as a tax benefit. In India, the premium cost borne by the employers is accounted as a business expense – making it 100% tax-deductible.

Here’s how it works:

As per the Income Tax Act, the amount contributed as premium for employees’ benefit will be accounted as ‘profit in lieu of salary’.

As mentioned above, the premium cost is classified under general business expenses. This benefit of tax is utilised by several types of entities such as partnership firms, start-ups, sole proprietorship, public and private companies, etc.

Tax benefits for employees

Considering different case scenarios, let us understand how the employees can avail tax benefits from Plum Group Health Insurance. Here, the premium amount is defined as ‘profit in lieu of salary’.

 Case 1 – Employee paying partial premium

Though the amount paid as premium by an employee can be availed as a deduction as per section 80D, the maximum allowable limit is restricted to up to Rs. 1 lakh in a fiscal year.

Case 2 – Employee paying entire premium

Even in this scenario, an employee can make a claim of the premium amount with the allowable limit of deduction set at Rs. 1 lakh.

Case 3 – Employer paying entire premium

There is no benefit to the employees in terms of tax deduction if the employer pays the entire premium amount on their behalf. However, the tax benefit for the same will be available to the employer.

We at Plum Insurance hope this article helps you understand the necessary details of how tax benefits for group medical insurance can be availed for both the employers and the employees. If this has encouraged you to provide the essential security to the employees of your firm, check out our employee group health insurance plans which start at only Rs. 999/year! 👍

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