Understanding the Tax Implications of Group Health Insurance

Table of Contents

  • Introduction
  • What is Group Health Insurance?
  • Tax Benefits of Group Health Insurance Policy
  • Wrapping Up


Employees are the building blocks of any organization. The workforce determines the ultimate success of any brand. Therefore, screening and hiring the best employees mark the first step in running a profitable venture. But the efforts do not end here. The real question is what can you, as the owner or CEO of a brand, do to attract and retain these talents? Several companies are offering competitive compensations, but most of them lack in offering lucrative benefits. A group health insurance policy is one such benefit that can make a big difference in how a brand establishes its relations with its employees.

You need to make your workforce feel appreciated and nurtured as an employer. This will have a positive impact on employee productivity and loyalty. In addition, the employees will feel relieved and concentrate more on their work, knowing that they have group health insurance that will give them and their dependents access to cutting-edge medical assistance in case of emergencies.

What is Group Health Insurance?

A group health insurance policy is a corporate insurance plan offered to all employees within an organization, irrespective of their job descriptions. This health insurance is a lucrative benefit for employees as it covers not only the employee but also his spouse, children, and parents.

Group health insurance also has several perks: it can be accessed from the first day of issuance of the insurance plan, and there is no need for medical reports as this insurance also covers pre-existing diseases. In addition, group health insurance covers maternity benefits, room rent, accidents, and various other services. Therefore, through group health insurance, a company is not only safeguarding its employees’ (and their dependents’) health but also securing them financially in case of medical emergencies.

Tax Benefits of Group Health Insurance Policy

Let us explore who can avail of tax benefits on the premiums paid for group health insurance.

For employers:

Health Insurance Tax Benefits under Section 80D Deductions

Group health insurance is a perk offered by a company to its employees. Therefore, the company pays the premium on the insurance. Employers can enjoy certain tax benefits against the premium they pay for the group health insurance following the Income Tax Act.

Section 17 of the Income Tax Act has specified clauses that define tax deductions on the premiums employers pay for group health insurance. The Income Tax Act has defined the premiums paid by an organization for its employees’ group health insurance as “profits in lieu of salary.” This premium is considered a business expense or an allowable expense. Therefore, it is included in the companies’ Profit and Loss balance sheets as they are part of the benefits provided to the workforce. This amount is then eligible to be exempt from taxation. However, at the same time, the medical expenses borne by the owner/proprietor or partner of the business are counted as “disallowable expenses,” which are taxable.

In cases where companies only pay partially for the insurance premiums and the employees themselves bear the rest, only the amount that the organization pays for the premiums is considered a business expense.

For employees:

Suppose an employer pays the entire premium on group health insurance, and the employees do not have to contribute anything. In that case, the employees are not eligible to claim any tax deductions on the insurance premiums. However, if the employees pay partially for the premiums against the insurance, they can claim tax exemption on the amount paid. These tax benefits from the end of the employees are per Section 80D of the Income Tax Act.

Let us go through the clauses under Section 80D to understand the implications of tax benefits.

Section 80D of the Income Tax Act pertains to the tax claims by people on the premiums paid for individual health insurance for themselves and their dependents.

You can claim a tax deduction of up to ₹25,000 per annum on health insurance premiums. This clause covers the premium for you, your spouse, and your children.

If you pay premiums for your parents’ health insurance, you can claim additional tax benefits up to ₹25,000 per annum.

For senior citizens, any premium paid towards health insurance for self, spouse, or children comes under tax deductions up to ₹50,000 per year. Any senior citizen paying a premium for the health insurance of their elderly parents can enjoy an additional tax benefit of up to ₹50,000.

Wrapping Up

In this article, we have explored the tax benefits of group health insurance policy from the employers’ and employees’ perspectives. Health insurance is indispensable in today’s world, where a pandemic is raging. Good health insurance offers financial security and access to top-notch medical infrastructure. Our government, too, is pushing companies to provide their employees with these benefits to safeguard their well-being. These tax benefits are a way to encourage employers to purchase group health insurance for their workforce.

As discussed, both the parties, employers and employees, can claim tax benefits against the premiums paid for health insurance in proportion to the amount. However, these tax benefits for both parties are claimed under different Income Tax Acts. The employer claims tax benefits under Section 17, while the employees claim tax benefits under Section 80D.