Group Health Insurance

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Are group health policies tax deductible?

Many organisations choose to buy group health insurance policies. This refers to a master policy that the organisation usually pays premiums for, but which provides medical cover to employees. Sometimes, organisations also extend this cover to dependent relatives of the employees.

Tax benefits of group health insurance

For organisations, an attractive feature of a corporate health insurance plan is that they can report the premium as an expense, thus lowering the tax payable. For a company that pays corporate tax of about 30%, the effective reduction in tax is 30% of the premium. If you look at it another way, the effective health insurance premium for the company would be 70% of the premium. However, this tax benefit is for the premium and only employers can claim tax deductions on them. Employees are only entitled to medical facilities and benefits. And to be eligible for these group health policy benefits, the employee should be in active employment.

Employees cannot claim tax exemption under the Income Tax Act for the premium amount that the employer pays. However, this is also not added to the employee’s taxable salary for tax calculation. If the employee pays premiums for life and health insurance policies for themselves and their families, these will be tax-deductible.

Case study: Claiming tax benefit for group mediclaim policy

Jatin works with a startup called Slicetake. He is covered by his company’s group health insurance policy. Slicetake shows the group health insurance premium shared equally among all employees on their pay slips. The amount is in addition to the gross salary that Jatin earns.

While filing his IT returns, Jatin assumes that this premium payment in his salary slip will be eligible for tax deduction under section 80D. However, his tax advisor explains that he cannot include the premium for a group health insurance scheme in either his taxable income or eligible deductions.

Slicetake, on the other hand, has paid Rs 138,000 as corporate health insurance premium for the previous fiscal year. The company registers the amount as an employee benefit expense in their financial statements. The company estimates its net profit after deducting this premium amount. This effectively lowers the tax that Slicetake has to pay.

Meanwhile, Jatin can claim a deduction under section 80D of the Income Tax Act, up to Rs 25,000, for the premium he paid on his individual policy. He can also claim an additional deduction of up to Rs 30,000 for the health insurance premium he paid for his parents, since he bought the policies separately.

Case study: Including claim paid as taxable income

Suraj Mehta, 27, is a junior editor at a reputed lifestyle publication. Last financial year, Suraj underwent a minor surgery, which required three days’ hospitalisation. His employer has a group medical insurance policy in place which covered his medical expenses. Accordingly, Suraj received Rs 59,000 from the insurance company for the medical bills he had paid.

While filing his annual returns, Suraj, includes this amount as taxable income under ‘income from other sources’ (as he could not find another category that was suitable) and pays taxes accordingly.

Six months later, he receives reimbursement from the income tax department. He also receives a note of rectification. The note clarifies that medical reimbursements from health policies are a non-taxable item. Since it is a small error and no information is missing, the income tax department does not ask Suraj to file a corrected return.