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Group Insurance Scheme Exemption Under Income Tax: Facts to Know

Team AckoJul 22, 2021

Apart from offering financial assistance during health-related emergencies, a Group Insurance Scheme also has several other advantages. One of the prominent ones being tax benefits. Such tax benefits can be availed by the employer as well as the employee. However, certain terms and conditions must be met for tax exemption. This article will help you understand different aspects of group insurance scheme exemption under Income Tax in India. Read ahead for facts, information, and insights.

Group Insurance Scheme Exemption Under Income Tax

Group Insurance Scheme Exemption Under Income Tax for Employers:

Most employee-centric companies offer a Group Insurance Policy to their employees as a part of the job perquisites. For the employer, this Group Insurance Scheme is characterized as an employee benefit and is termed as ‘profit in lieu of salary’. In most cases, employers pay the applicable premium to the insurer on behalf of the employee.

As per the government’s 2020 guidelines, companies resuming work post the nation-wide lockdown need to provide a Group Health Insurance cover to their employees. The company will be eligible for Group Health Insurance tax benefits accordingly.

Tax Benefit of Group Health Insurance for Employers:

The premium paid by the employers to insure their employees is termed as a business expense for the company. This expense is shown in the employer’s profit and loss account and is eligible for tax benefits in accordance with the Indian Income Tax Act, 1961. Such tax benefits are considered as ‘employer entitlement’ according to the Insurance Regulatory and Development Authority Act, 1999.

If both, the employer and employee, pay the premium, then the employer can gain tax benefit only for the contributed amount and not for the amount paid by the employee.

Which Employers Can Avail Tax Benefits?

Different types of employers can offer the group health benefits to their employees and avail the corresponding tax benefits. Here’s a handy list of such types of employers. 

  • Sole proprietorship

  • Partnership firms

  • Public companies

  • Private companies

  • Start-up ventures

  • Micro, Small and Medium Enterprises (MSMEs)

Example of Employer-offered Group Medical Cover

The Digital Start-up is a tech-based start-up based in Bengaluru. It makes apps and employs more than fifty people. The company insures its employees and their immediate family members with a Group Medical Cover from ACKO by paying the premium for them. This payment is shown as a business expense by the company and applicable tax benefit is availed by them.

Why Should Employers Offer Group Health Insurance?

Employers should insure their employees under a Corporate Health Plan to offer Comprehensive health insurance, preventive healthcare benefits, and wellness benefits for their employees. Apart from these, other benefits are listed below. 

  • Increase employee loyalty

  • Better productivity

  • Decrease employee absenteeism

  • Enhance goodwill

  • Avail tax benefits

Group Insurance Scheme Exemption Under Income Tax for Employees:

As the premium for a group health policy for employees is usually paid by the employer, the employees do not have the opportunity to avail tax benefits. However, there are instances where the employees also contribute to the premium payment. In such cases, they can avail tax benefits as per Section 80D of the Income Tax Act.

The exact benefit will depend upon the amount paid as premium and the applicable tax laws at the time of tax computation. This varies as per government regulations surrounding tax structure/benefits announced in the annual budget.

Tax Benefit of Group Health Insurance for Employees:

Here are three possible instances for employees when it comes to the premium paid for Group Health Insurance. Each instance has a different tax implication.

Case 1

Instance: The employer pays the entire health insurance premium. There is no contribution from the employee.

Tax Implication: Here, the employee is receiving health insurance coverage free of cost. As the employer is paying for the policy, only the employer is eligible to avail the applicable tax benefits.

Case 2

Instance: The employer pays the majority of the health insurance premium and the employee contributes for the rest of it.

Tax Implication: The employee can avail tax benefits in proportion to the amount paid (by the employee) as insurance premium as per the Income Tax Act.

Case 3

Instance: The employer pays the entire premium for the basic policy. The employee pays an additional premium to increase the policy’s Sum Insured by purchasing a Top-up Plan or to widen the coverage by paying for add-on coverage.

Tax Implication: Here, the employee can seek tax deductions for the amount paid (by the employee) for the Top-up Plan or additional coverage.

Example of Group Medical Cover for an Employee:

Mary is an employee of The Digital Start-up. The company has covered her under a Group Health Cover purchased from ACKO. As a result, she gets coverage of Rs. 5 lakhs. Not only Mary but her parents are also covered under this policy.

As Mary doesn’t have an individual health cover, she decides to Top up the company-offered coverage by paying an additional premium. Here, she can avail tax benefit for the amount paid to buy the Top-up Plan.

Also, check: How To Claim Tax Benefits on Health Insurance Premiums?

Advantage of Group Health Cover for Employees

Here are the top advantages of a Group Health Cover for employees. Note that the exact advantages will depend upon the chosen coverage.

Insurance-related Advantages

  • Wide-ranging health cover for free

  • No waiting period for pre-existing diseases

  • Customisation of the policy with add-ons and top-ups

  • Inclusion of parents in the coverage

Wellness-related Advantages

  • Telemedicine consultation with medical professionals

  • Discounts on medicines and lab tests

  • Rewards for finishing fitness-based challenges

  • Sessions with nutritionists and mental health specialists

Advantage of ACKO’s Group Health Cover:

ACKO’s Group Medical Cover offers the above-mentioned advantages based on the chosen coverage. Note that this plan is customisable as per the employer’s requirements. Employees also have the option to opt for enhanced coverage. Here are some additional highlights of ACKO’s Company Health Insurance.

  • Wide-ranging insurance coverage and wellness benefits

  • Partnership with more than: 35,000 doctors, 6,300 hospitals, 4,500 labs 

  • Tech-based interface for smooth operations

  • Hassle-free claim settlement process

  • Paperless transactions

Frequently Asked Questions (FAQs):

Listed below are common queries surrounding Group Health Insurance.

Employer-related FAQs:

What is the eligibility for a Group Insurance Scheme?

Earlier, the criteria for offering Corporate Health Insurance were stringent but post 2020 it is a lot flexible. For example, a start-up can insure a 20-member team as well. From an employee standpoint, ideally, they need to be full-time employees of the organisation. Employee’s family members can also be included in the policy.

Is the premium for a Group Insurance Policy for Employees tax deductible?

Yes, such an expense is applicable for tax deductions for the employer.

Employee-related FAQs:

Can I claim tax benefits for the premium paid by my employer?

No, the employee cannot claim tax benefits if the entire premium amount is paid by the employer and there is no contribution from the employee.

Can my family members be covered in the Employer-offered Group Mediclaim Policy?

Yes, in most cases, the employee’s immediate family members can be covered under the plan. For example, ACKO’s Group Policy allows the inclusion of parents and spouse.

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