If you are a part of a group and the group has opted for the group health insurance scheme; you should know of the tax implications and benefit of the same. A group health insurance policy is popular amongst registered groups, especially employer-employee groups. This is because of the following reasons –
- The group health plan allows optimal coverage to all the members of the group under a single policy.
- The premiums are cost-effective and affordable.
- Insured members can enjoy coverage for their pre-existing conditions from the first day of the policy itself.
- You can extend the coverage to the family members of the insured group members and customise the coverage through available add-ons.
- Also, you can continuously renew the plan and every individual can get automatic coverage if he/she is a part of the group.
Moreover, a group health insurance scheme doubles up as an employee welfare scheme for employers. It allows the employees financial protection in medical emergencies thereby giving them financial relief. This relief can convert to enhanced profitability which, in turn, proves profitable for the business.
While there are different benefits of a group health insurance scheme, there is a tax advantage too. The tax benefit is allowed on the premium paid for the group health insurance cover. Moreover, the plan benefits also do not attract any form of tax.
Let’s understand the tax benefits in detail.
Tax benefit on group health insurance premium:
Before assessing the tax implication on the premium paid for group health plans, it is important to understand who can get the benefit.
The answer to this is simple – the person paying the premium receives the benefit.
Now, when it comes to a premium payment for group health insurance plans, there are three options –
- The group head can pay the premium
- The insured member can pay the premium. In this case, the insured members pay a premium for their part of the coverage. The group would collect the premium from all members and then pay it in a lump sum to the insurance company.
- The group head or the employer, as well as the insured members, can split the insurance premium.
Now that you know the three instances of premium payments, let’s understand the tax implications of each.
Premium paid by the group
Since the premium is being funded from the taxable income of the group as a whole, the tax benefit is also allowed to the group, as a taxable entity. For instance, if the employer pays the premium for the employees, the employer can claim tax benefits on the premium paid.
The premium that the group head pays towards a group health insurance plan, can claim it as a tax-free expense from its taxable income. This would reduce the taxable income of the group and lower its tax liability.
For instance, say a company pays a premium of Rs.5 lakhs for its employees’ group health insurance cover. This premium can be deducted from the company’s taxable profit before tax computation. If the rate of corporate tax is 30%, the premium of Rs.5 lakhs would help the company lower its tax liability by Rs.1.5 lakhs.
Premium paid by the members
If each insured member contributes his/her premium for the group health insurance coverage, the tax benefit would be available to the member.
Members can claim a deduction for the premium paid under the provisions of Section 80D. The limit of deduction is Rs.25,000 and it becomes Rs.50,000 if the insured member is aged 60 years and above.
Furthermore, if the parents of the insured member are under the coverage benefits; the member can avail of an additional deduction of up to Rs.25,000 under Section 80D. Moreover, if the parents are aged 60 years and above, the deduction limit would be hiked to Rs.50,000.
Thus, the group health insurance premium can help members reduce their taxable incomes by up to Rs.1 lakh which converts to a tax saving of Rs.30,000 if the member is in the 30% tax bracket.
Premium shared by both
If both the group and its individual members pay the premium, each can enjoy the tax benefit on the premiums. The group can claim the premium paid as an eligible deduction from its expenses and bring down its taxable income. The insured members can claim a deduction under Section 80D on their part of the premium. The maximum limit under Section 80D is Rs.1 lakhs.
Tax benefit on group health insurance
Most group health insurance plans are indemnity-oriented plans. This means that they cover the actual cost of hospitalisation and associated treatments. Such plans pay the incurred hospital bills up to the limit of coverage. Since these plans merely cover the actual expenses and do not give you any form of income, no tax implication arises on the claim paid.
In the case of fixed-benefit plans, like critical illness plans, a lump sum benefit is payable to the member if he/she suffers from a covered critical illness. This benefit is not for specific medical expenses but for the overall financial loss that you might suffer in the case of such illnesses. This benefit, thus, forms a type of income in your hand. However, this income is not taxable since you get the money only to deal with the financial loss of an unforeseen emergency.
So, whether you have group health insurance coverage under an indemnity health plan or under a fixed benefit one, there are no tax implications on the benefits of a group health policy.
Additional Read: Who is the right insurer for a start-up GMC?
The bottom line
Health insurance plans are tax saving plans and the same holds true for group schemes as well. If you pay any premium for the group health insurance coverage; your payment would be eligible for a deduction under Section 80D. This would help you save tax up to Rs.30,000 (considering you are in the 30% tax bracket and you pay a premium of Rs.1 lakh for your and your parents’ cover).
On the other hand, the benefits received would also be tax-free.
A group health insurance policy, thus, not only provides affordable coverage, it also helps you save taxes. A win-win in both the cases, don’t you think?