As healthcare costs continue to rise, organisations and individuals alike are recognising the value of group health insurance. Its comprehensive coverage, pocket-friendly premiums and the ability to retain talent have made it a highly sought-after employee benefits program.
However, the advantages of group healthcare plans extend far beyond affordable access to quality medical care and motivated employees. This type of health insurance also offers significant tax benefits to both employers and employees.
Want to unlock the tax benefits of group health insurance? Keep reading to discover the tax-saving opportunities offered by a group mediclaim policy.
Group Health Insurance Tax Benefits for Employers
This type of insurance policy offers valuable tax exemptions on group health insurance premiums, which enable employers to decrease their tax burden.
Under this, an employer’s premium contributions to a group insurance health policy for providing medical coverage to employees remain completely deductible. This is because these contributions fall under the category of “profits in lieu of salary” mentioned in Section 17 of the Income Tax Act.
Hence, when employers buy a group mediclaim policy from insurers like TATA AIG, they are allowed to add these premium payments as a business expense in the profit and loss account and balance sheet, reducing their total taxable income and lowering their tax liability.
Which Types of Employers are Eligible for Group Insurance Health Tax Benefits?
- Start-up companies
- Sole proprietorships
- Public or private companies
- Partnership firms
- Micro, Small, and Medium Enterprises (MSMEs), etc.
Group Health Insurance Tax Benefits for Employees
Many employees wonder, “Are group health insurance premiums taxable?” – The answer is yes. However, this is only if employees pay a part of the premiums under the group health policy.
Section 80D of the Income Tax Act, 1961, provides tax relief for employees in respect of group insurance health premiums paid in a financial year.
Under this, an employee is eligible to claim:
- A tax deduction of up to ₹25,000 per annum if he pays health insurance premiums for himself and his family (including spouse and dependent children).
- An additional tax deductible employee benefit of up to ₹25,000 per annum in case the health insurance policy includes the assessee’s parents or ₹50,000 if the assessee’s parents are above 60 years of age.
- A tax deduction of up to ₹1,00,000 if both the employee and his parents are above 60 years of age.
Apart from this, there are also some other essential considerations that you must pay attention to when claiming available group insurance deductions in income tax. These include:
- Deductions are only applicable to the premium contributions made by the assessee.
- For joint premium payments (where the employer pays a major portion and the employer pays the rest), the employee/assessee can get tax deductible employee benefits in proportion to his contribution.
- In cases where the employer pays the base premium but the employee pays an additional premium for a top-up plan, the employee can claim employee tax deductions only on the additional amount paid for top-up coverage.
Note: Tax deductions on group health insurance premiums are subject to change under prevailing tax laws. Therefore, it is suggested that you refer to the latest tax rules and regulations to confirm eligibility and available deductions.
Ways to Maximise Group Health Insurance Tax Benefits
- Optimise Employer-Employee Contribution Ratios: As both employers and employees are eligible for tax exemption for mediclaim policy, determining a tax-efficient premium contribution ratio can be useful.
By splitting the premium contributions of group insurance health, the employer and employee can optimally utilise the available tax deductions and reduce their tax liability.
- Utilise Preventive Health Check-Up Deduction: Policyholders can also claim preventive health check-up deductions for eligible medical expenses incurred for themselves, their spouse, children and parent(s).
- Claim Deductions for Top-Up Plans: Another trick to maximise tax benefits is buying top-up plans and claiming employee tax deductions on extra premiums paid for enhanced coverage and additional financial protection.
- Stay Updated on Tax Laws: Regularly updating your knowledge of tax laws, including existing regulations on tax-deductible employee benefits and annual budget updates on tax exemptions and deductions, can also ensure effective utilisation of group health insurance tax benefits.
Coming to an End
Offering group health insurance to employees is a strategic decision that provides valuable tax exemption for mediclaim policy benefits to employers.
This guide has outlined key regulations and employer and employee tax deductions related to group health insurance, enabling employers and employees to optimise their savings while enjoying financial coverage.
By applying these insights, both policyholders and beneficiaries can fully leverage the group health insurance tax advantages, enhancing financial resilience and fostering a healthier, loyal workforce.
