Insurance 

Is Group Medical Insurance Tax Deductible?

A group mediclaim plan is a beneficial employee benefits scheme 🧑‍💼 that helps your employees safeguard their finances. The policy covers your employees against the expensive medical bills that they might incur in a medical emergency 🩺. It has a comprehensive scope of coverage as it offers both inbuilt coverage features as well as optional ones. As an employer, you can invest in a group mediclaim plan for your employees for their financial well-being. The policy boosts employee morale and helps in increasing productivity. To add icing to the cake 🧁, there is a tax angle too.

Yes, you read it right! Group health insurance plans are tax-efficient. The premium paid for the policy is eligible for tax deduction thereby lowering tax liability. However, there are rules 📋regarding the tax benefits of group mediclaim plans. These rules depend on who is paying the premium. So, let’s explore the tax benefits in detail.

Premium payment under group health plans 💰

The premium of a group health insurance scheme can be paid by –

  • The employer – You can pay the collective premium of all the insured employees.
  • The employees -Each employee pays his/her share of the premium.
  • Jointly by the employer and the employees 🤝- you can share the premium payment with your employees in a pre-defined manner. For instance, you can pay 50% of the group insurance premium while the remaining 50% is paid by the employees.

Tax benefits under group mediclaim policies

The tax benefit on the premium is given to the one who pays the premium. That is why the tax benefit of employee health insurance plans is different in different instances depending on who has paid the premium. So, let’s examine the tax benefit for each instance of premium payment.

  • Instance 1 – When you, the employer, pays the full premium of the policy 💵

The group medical plan that you buy for your employees is a type of employee benefit plan. The premium that you pay for the coverage is called ‘profit in lieu of salary’. This premium forms a type of business expense. Under the provisions of the Income Tax Act, 1961, this business expense is tax-deductible. This means that the premium that you pay for the corporate insurance plan would be allowed as a tax-deductible expense from your business profits. This deduction would lower your profits and lower profits mean lower tax liability.

For instance, say you pay Rs.1 lakh as a premium for an employee health insurance policy. If your organisation falls under the 30% tax bracket, this premium payment would help you save Rs.30,000 (30% of Rs.1 lakh) in taxes.

  • Instance 2 – When the employee pays the premium for his/her cover 💶

If the employee pays the premium, you would not incur any additional expense. As such, you would not be eligible for the tax benefits. The tax benefits, instead, would go to your employee. Your employee can claim a deduction from his/her tax liability for the premium paid. This deduction is allowed under Section 80D of the Income Tax Act, 1961. The deduction limit is as follows –

  • 25,000 for the premium paid for self, spouse and kids’ 👪coverage
  • 50,000 if your employee is a senior citizen🧓, i.e. aged 60
  • An additional Rs.25,000 if the coverage is extended to your employee’s parents (aged below 60) and the employee pays the premium for the same
  • An additional Rs.50,000 if the coverage is extended to your employee’s senior citizen parents and the employee pays for such coverage

In aggregation, if your employee is a senior citizen and pays the premium for themself and also for his/her senior citizen parents, the maximum deduction allowed under Section 80D would amount to Rs.1 lakh. This means a tax saving of up to Rs.30,000 for your employee if he/she is in the 30% tax bracket.

  • Instance 3 – When you, the employer, and the employee share the premium

This instance combines both the aforementioned instances. If you share the premium payment with your employee, each of you can avail of the tax benefits. The premium that you pay would be allowed as a tax-deductible business expense and would be deducted from your taxable profits. This would help you save tax on your business profits.

At the same time, the premium that your employee pays would be allowed as a deduction from his/her income under Section 80D. Thus, your employees can also save tax on their premium payments.

Group health insurance plans, thus, allow tax benefits to whoever pays the premium. As such, if you want to provide that extra compensation to your employees, you can invest in the group insurance plan and pay the premium. Along with boosting employee loyalty, the plan would also be financially rewarding for the business with its tax benefits. On the other hand, if you make the plan available for your employees and they undertake to pay the premium, they not only enjoy affordable coverage but a reduced tax liability too. A win-win, both for you and your employees.

So, invest in a group mediclaim plan for your employees and give them financial security. For customised solutions, visit Plum Insurance and check out the available options. Find the most suitable coverage and enjoy competitive premium rates to make the policy cost-effective and tax-efficient.

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