Only employers can claim tax deductions on premiums paid for the group health insurance policy for employees in India.
An employee is not entitled to Income Tax (IT) exemption under the group health insurance coverage provided by an employer.
The employees are only entitled to medical facilities and benefits. But they cannot claim tax exemption under IT Act for the premium amount paid by the employer. However, it is also not added to the employee’s taxable salary for tax calculation.
As is the case, to be eligible for group health policy benefits, the employee should be in active employment.
The tax deduction is available only on the premium paid for the policy by the employer.
Regardless of the tax benefit, the premium payable is an expense, and it will make sense for the employers to reduce it by taking relevant steps. There are many factors that affect the premium calculation for group health insurance.
However, the premium paid by an employee for life and health insurance policies for herself, the family, and parents are tax-deductible for the employee.
A case on the Tax Benefit of Group Health Insurance Policy
Jatin is working with a startup firm called Slicetake. Jatin is covered by the group health insurance policy provided by his employer. Slicetake shows a sharing of group health premium in equal amounts with all the employees in their pay slips.
At the time of filing ITR Jatin assumes that this premium payment shown in his salary slip will be eligible for tax deduction under section 80D. However, as his tax advisor explains, the premium amount paid for group health insurance for employees cannot be included in either his taxable income or eligible deductions. Only the employer is eligible for deduction on the same.
Slicetake, on the other hand, has paid about Rs. 138,000 in group health insurance premium for the financial year 2016-17. The company registers the amount as an employee benefit expense in their financial statements.
Jatin and his colleagues, however, can claim a deduction under section 80D of Income Tax Act, up to Rs. 25,000 for the premium paid on either individual policies or family floater policy for themselves and their families (including spouse and dependent children).
They can claim an additional deduction of up to Rs. 30,000 for health insurance premium paid for their parents. However, these policies must be bought separately, and the premium should be paid out of their pocket.
Including the Claim Received as Taxable Income in ITR
Suraj Mehta, 27 years, is a junior editor at a reputed lifestyle publisher. Last financial year Suraj underwent a minor surgery for which he was hospitalized for three days. The medical expenses were covered by the employee health insurance provided by the employer and Suraj received a total of Rs. 59,000 in reimbursement from the insurance.
While filing his annual ITR, Suraj, included this amount as taxable income under Income from Other Sources (as he could not find a head to fit the amount in) and paid the taxes accordingly.
After six months, he received a reimbursement from the Income Tax Department, which had rectified the error, along with a note of rectification for the ITR. Since it was a small error and no information was missing, the IT department did not ask Suraj to file a corrected return.
However, the note clarified the position of medical reimbursements from health policies as a non-taxable item, which Suraj can take care of next year.