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Explained: Tax benefits of group health insurance for employers, employees

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Investing in group health insurance goes a long way in building the organization’s image as being employee-oriented. Knowing that your corporate health insurance cover protects you during medical exigencies while allowing you access to state-of-the-art treatment facilities can be a huge relief for the workforce.

Explained: Tax benefits of group health insurance for employers, employees
While sourcing the right talent is an arduous process for most organizations, retaining employees can be exponentially challenging. One of the tried and tested means of attracting and engaging the best workforce, who form the foundation of a successful venture, is to offer lucrative compensation, rewards and benefits. Having your employees feel nurtured and valued for their contribution to the company will ensure greater satisfaction and lower attrition.
Investing in group health insurance goes a long way in building the organization’s image as being employee-oriented. Knowing that your corporate health insurance cover protects you during medical exigencies while allowing you access to state-of-the-art treatment facilities can be a huge relief for the workforce. The personnel and their families appreciate that their health and financial safety are safeguarded by a company that cares deeply for their wellbeing. This, in turn, motivates employees to perform better, improves overall productivity and builds loyalty.
Group Medical Cover (or Group Health Insurance) provides uniform benefits to all the employees of the organization with hassle-free, instant coverage from day 1 of issuance of the corporate health insurance plan. Employees and dependents need not undergo pre-policy medical screening and can enjoy coverage even in cases of pre-existing diseases without having to serve a long waiting period. A wide range of treatments, illnesses and conditions are taken care of by the group health insurance plan right from the start, including maternity.
In addition to these comprehensive advantages, companies extending group medical cover to their employees can avail of tax benefits on the premium paid towards employees’ health insurance plans.
Understanding Tax Benefits of Group Health Insurance for Employers
As per the guidelines issued by the Government in the year 2020, organizations resuming operations post lockdown have to mandatorily extend group health insurance cover to their workforce. Certain stipulated tax benefits will apply to the group medical cover premiums paid by these companies in accordance with the Income Tax Act.
Section 17 of the Income Tax Act, 1961 defines a clause called “profit in lieu of salary”, which is pertinent to Group Health Insurance for employers. This section determines that premiums paid by companies towards health insurance for their employees is considered as “profit in lieu of salary”. Health Insurance premium payments are termed as a business expense, which are itemized in the Profit and Loss Account of such companies. The Insurance Regulatory and Development Authority Act, 1999 deems these tax benefits as “Employer Entitlement”.
In cases wherein companies contribute partly toward group health insurance premiums (and the balance is paid by employees themselves), only the contributed amount by the organization will be considered as business expenses.
Particularly for sole proprietorships and partnership businesses, any medical expenses incurred by the proprietor or partner would be considered as a “disallowable expense”, which would fall under the purview of taxable expenditure. However, medical facilities provided by such companies to their employees would be deemed as “allowable expense” and would, therefore, be exempt from taxation.
Understanding Tax Benefits of Group Health Insurance for Employees
Group Health Insurance premiums that are paid entirely by the organization cannot be claimed for tax deduction by the employees. However, in the case of part payment made by employees, they can avail tax exemption on the amount contributed by them towards group medical cover.
Section 80D of the Income Tax Act pertains to individual health insurance premiums paid and the tax benefits applicable thereupon. Employees can claim tax deduction up to Rs. 25,000 per annum on premiums paid towards health insurance for self, spouse and dependent children. An additional Rs. 25,000 deduction can be claimed per year towards health insurance premiums paid for parents by employees. Moreover, in the case of senior citizens, health insurance premiums for self, spouse and children would qualify for tax deduction up to Rs. 50,000 per annum, plus extra Rs. 50,000 deduction if the senior citizens pay premium for their elderly parents.
Conclusion
Medical emergencies arising as a result of the widespread pandemic has reinforced the importance of adequate health insurance coverage for organizations as well as individuals. Investing in comprehensive group medical cover contributes greatly to higher employee delight and commitment, in addition to extending monetary benefits to the company in the form of tax exemptions.
The author, Nayan Goswami, is Head – Group Business and Sales and Service at SANA.Insure. The views expressed are personal
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