By providing group health insurance, companies do more than just protect employee health. They also make a financially wise choice. Such policies offer tax advantages for both employers and employees, making them an important part of compensation packages.
For organisations, premiums are treated as deductible business expenses, lowering taxable income while strengthening employee retention. For employees, the coverage brings peace of mind without creating an additional tax burden.
In an age of rising medical costs, a group health insurance policy not only safeguards against unexpected financial stress but also delivers long-term savings and stability for businesses and their workforce.
What is Group Health Insurance?
Group health insurance is a single policy that provides health coverage to a group, usually employees of a company. Instead of buying individual plans, members are covered under one master policy, which lowers premiums, simplifies management and often removes the need for medical checkups or long waiting periods.
Coverage may also extend to dependents like spouses and children. Employers typically pay the premiums fully or share them with employees. Today, companies can conveniently compare policies and buy business insurance online, making it easier to secure affordable group health coverage that benefits both employers and their workforce.
Tax Benefits for Employers
Employers offering group health insurance to their workforce enjoy several tax incentives under the Income Tax Act, 1961.
Business Expense Deduction
Premiums paid by the employer toward group health insurance are treated as a business expense under Section 37(1). Since these payments are entirely made for business purposes, they are deductible, effectively lowering the taxable income of the company.
No Fringe Benefit Tax
Group health insurance coverage is not treated as a taxable benefit for employees. By offering insurance instead of cash allowances, employers provide valuable non-taxable perks, thereby improving employee retention without additional tax outgo.
Tax Benefits for Employees
While employers pay the premium, employees can also leverage certain tax benefits of a group health insurance plan.
Tax-Free Premiums
Premiums paid by the employer under group health insurance are generally not included in an employee’s taxable income, making the benefit effectively tax-free.
Moreover, if employees also contribute to the group health coverage, they may claim deductions under Section 80D.
Additional Tax Savings with Personal Policies
If an employee buys an individual or family health plan alongside their group cover, they can claim deductions under Section 80D of the Income Tax Act. The group cover acts as a base, while the individual policy allows for direct tax savings.
How Does this Work?
The premium paid by the employer for a group health insurance policy can be claimed as an expense in the balance sheet or profit and loss account of the company. The employer may thus avail of tax benefits and deduct the amount from taxable income. Here’s how employers can maximise this tax benefit.
- Record the premium paid for the GHI policy and deduct it from the taxable income.
- Ensure that you claim the GST paid while purchasing the policy as a tax credit.
- Review and update the plan when required to ensure compliance with the evolving tax laws and regulations.
Conclusion
Tax benefits make group health insurance a valuable investment for both employers and employees. Companies can manage costs efficiently while supporting their workforce, and employees gain access to affordable and comprehensive health coverage.
With the option to buy business insurance online from trusted insurers like TATA AIG, securing these benefits is now easier, faster, and more cost-effective than ever.
