Is Group Term Insurance Taxable to Beneficiaries?

Group Insurance Schemes are popular in India. Many companies opt for them for their employees as it provides various advantages besides quick financial help in health-related emergencies. A tax benefit is one such advantage. Let us understand how Group Term Insurance works in India and its benefits. This article will also give one insight, information, and pertinent facts about terms and conditions to be met for availing of tax exemption. It will help make an informed decision about providing coverage to the employees working in the organisation.

Group Insurance Policy for the Employees

Many companies that consider themselves an employee-centric offer a Group Insurance Policy to their employees and consider it a job requisite. This scheme is seen as a benefit by the employer for the employee and considered as ‘profit in lieu’ of salary. Usually, the applicable premium is paid by the employers on behalf of the employee to the insurer.

The 2020 guidelines released by the Government state that the companies getting back to work after a nationwide lockdown need to provide the coverage of Group Health Insurance to their employees. Doing so will make the employees eligible for tax benefits related to Group Health Insurance. Let us understand how employers are benefited from Group Health Insurance.

Employers- Group Term Insurance Tax Benefits

Employers pay a premium to insure their employees; this premium is referred to as a business expense for the company. It is replicated in the profit and loss account of the company, making the employer eligible for tax benefits as per the Indian Income Tax Act, 1961. These tax benefits or employer entitlements are following the Insurance Regulatory and Development Authority Act, 1999.

If the premium is paid both by the employer and the employee, the employer gets tax benefits only on the amount contributed and not on the amount paid by the employee.

It is pertinent to note that different employers avail corresponding tax benefits upon offering group health benefits to their employees. These employers can be

  • Partnership Firms
  • Sole Proprietorship
  • Private Companies
  • Public Companies
  • MSMEs or Micro, Small, and Medium Enterprises
  • Start-up Ventures

Why Should Employers Provide Their Employees with Group Health Insurance?

Employers can provide their employees with Group Health Insurance under a Corporate Health Plan, covering preventive healthcare benefits, comprehensive health insurance, wellness benefits, and more for their employees. Besides these benefits, employers also gain a lot in terms of:

  • Increased Goodwill
  • Better Productivity
  • Increased Employee Loyalty
  • Avail Tax Benefits
  • Decreased Employee Absenteeism

Group Insurance Scheme Exemption for Employees Under Income Tax

Usually, the employers pay the premium for the group health policy for employees. In such a case, employees do not stand to avail tax benefits on group term insurance. In instances where employees also contribute towards the payment of premium, they can avail of tax benefits as per Section 80D of the Indian Income Tax Act. The benefits that the beneficiaries can avail of largely depend on the premium amount paid and the tax laws applicable to tax computation. It may vary as per government regulations related to tax benefits or structure as announced in the annual budget.

Tax Benefit for Employees from Group Health Insurance

Instance 1. There may be different instances when employees or beneficiaries can avail of tax benefits on premiums paid towards Group Health Insurance. In each of these instances, the tax implications may differ.

In the first instance, the employer pays the entire premium towards the group health insurance plan. The employee does not contribute. In this case, the employee enjoys free-of-cost health insurance coverage. Since the employer pays for the policy, only the employer can avail of the tax benefits as applicable.

Instance 2. Here, the employer majorly contributes to the health insurance premium while the employee contributes the rest. In this case, tax benefits are availed by the employee in proportion to his insurance premium contribution as per the Income Tax Act.

Instance 3. As per the basic policy, the employer pays the entire premium. The employee pays an additional premium amount to increase the insured sum promised in the policy by widening Coverage with add-on coverage features or buying a top-up plan. In this case, the employee is eligible to seek tax deductions on the amount paid by the employee for additional Coverage or a top-up plan.

Benefits of Group Life Insurance for Employees

Many companies cannot decide whether they should provide Group life insurance to their employees. The benefits of this insurance include:

  • No waiting period for pre-existing diseases
  • Wide coverage for free
  • Parents included in the coverage
  • Policy customisation with top-ups and add-ons.

Group term insurance includes coverage for employees. It is referred to as a corporate or employee insurance plan. Plum Insurance, a reputed insurance service, provides various insurance products to individuals and companies. Our company structure plan offers many advantages to the policy users at a very affordable cost. One can also apply for a digital health ID card by visiting the website.

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