Introduction
If you work at a small business, you’ve probably wondered how to keep your employees motivated in adverse situations. Service providers widely use Group Insurance Policy to provide social and ancillary benefits to their employees. It also offers medical cover in case of unforeseen events. Among the service providers, start-ups have a higher tendency to take this benefit forward as it enhances employees’ productivity and, at the same time, encourages them for the betterment of their organization. Plum Insurance offers you great group insurance with optional benefits, all at a cost that suits your budget.
But, the question that arises is whether these plans get tax benefits under sections 80C and 80D of the Income Tax Act, 1961. You can claim tax benefits for certain group insurance products if specified conditions are fulfilled.
Section 80C of the Income Tax Act
- To encourage investors to save for their future, the government has given tax benefits to a range of investments.
- Section 80C of India’s Income Tax Act denotes different investments and expenditures that are exempt from Income Tax. It permits an investor to deduct up to 1,50,000 INR from their overall taxable income each year.
- Premiums paid for life insurance plans are eligible for tax breaks up to the 80C threshold. Presently, a yearly insurance premium amount of up to a limit of 20% of the entire sum insured of a life insurance plan is tax-free under this system.
- Tax deductions are a great way to save extra money from your taxable income. Section 80C is a provision of the Income Tax Act that allows an individual to get tax benefits on contributions they make towards financial instruments, savings, and investments.
- But, only individuals and Hindu undivided families are qualified to avail of the tax exemptions under Section 80C. Corporate bodies, Partnership companies, Cooperative societies, Clubs, and all Trusts cannot avail of the tax exemptions under Section 80C.
Is a Group Insurance Policy tax-deductible under 80C?
There are some conditions that needed to be fulfilled to receive 80C tax benefits. Let’s study this on a case-by-case basis:
- First Case: The group life insurance premium is entirely paid by the company in full. Employers who pay the premium can book the amount as an expense, and thus, you will receive no direct tax advantage.
- Second Case: The group life insurance premium is partially paid by the company, and the rest amount needs to be paid by the employees. Here, employees can receive tax benefits under Section 80C on the amount paid to them. Therefore, in this case, the tax benefits will be proportional to the amount you pay in premiums for the group life insurance policy coverage.
- Third Case: Group life insurance policies can be availed on a top-up plan. Top-up is a feature of ULIP Plans. It is a level of freedom that regular plans do not supply and that only ULIPs provide. It is a sum that the insured can pay at any moment to enhance the amount of his fund without incurring any fees. Again, just like in the second case, the premium paid by the employee is subject to tax benefits under Section 80C.
Section 80D of the Income Tax Act
Section 80D permits you to deduct funds spent on healthcare and medical insurance, and it is very important in your tax preparation and personal budget. Section 80D allows individuals and Hindu Undivided Families (HUFs) to deduct certain expenses from their taxable income. The following are the deduction limits under Income Tax Act Section 80D:
| Insured | Deduction Amount for Policyholders under 60 years | Deduction Amount for Policyholders above 60 years |
| Self, Children and Spouse | 25,000 INR | 50,000 INR |
| Parents | 25,000 INR | 50,000 INR |
| Preventive Healthcare | 5,000 INR | 5,000 INR |
Is a Group Insurance Plan tax-deductible under 80D?
There are some requirements to obtain the 80D tax benefits. How these requirements affect you depends on your individual circumstance.
- First Case: The employer pays the whole premium amount for group health insurance. Companies who pay the insurance premium can book the cost as an expense, therefore you will not receive any direct tax benefit.
- Second Case: The business pays a portion of the group medical insurance premium, and the employees pay the remainder. In this case, employees can claim tax breaks under Income Tax Act Section 80D on the sum they pay up to the limit mentioned above. So, the number of tax benefits you can claim will be based on the amount of premium you pay for group health insurance coverage.
- Third Case: Your group insurance policy may offer top-up features. Top-up Medical Insurance supplements your current health insurance coverage. It only provides coverage when your base coverage limit has been exhausted, i.e., your healthcare expenses exceed your total insured sum. These plans have varying deductibles or threshold restrictions. Likewise, as previously mentioned, the employee’s premium contribution is tax-deductible under Section 80D.
Conclusion
So, does Group Insurance Policy qualify as a tax-saving investment product? Well, it depends. To avail tax benefits under sections 80C and 80D, the group insurance product must be a part of your employer’s group welfare scheme. This means that the premium paid by you should be deducted from your salary. However, in many cases, employees do not avail of these deductions since their employers pay the premium amounts, and they fulfill their tax-saving requirements using some other product.
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