Key Takeaways

• Group health insurance premiums paid by the employer are deductible as a business expense under Section 37(1) of the Income Tax Act 1961, not under Section 80D.
• Under Section 80D, employees can claim tax deductions on the portion of the premium they pay themselves, or on personal top-up plans they purchase separately.
• The 80D deduction limit is Rs 25,000 per year for individuals below 60, and Rs 50,000 for senior citizens, applicable to employee-paid portions only.
• Group health insurance qualifies as a non-taxable perquisite for employees when the employer pays the full premium, meaning no additional income tax liability arises for the employee.
• Startups, private companies, sole proprietors, partnership firms, public companies, and MSMEs all qualify for employer-side tax deductions on group health insurance premiums.

Most firms in Bangalore offer group health insurance policies for the benefit of the employees, as well as recruiting more talent. The issue of taxes is often taken into consideration during the latter part of the year while assessing deductions.

However, the taxation aspects of group health insurance plans cannot be ignored because they have a bearing on how the premiums will be treated for accounting purposes and will impact employee deductions from their income tax. This article will focus on the five most important tax aspects.

How Group Health Insurance Tax Benefits Actually Work

Before getting into the specific benefits, it helps to understand the basic mechanism. Group health insurance premiums paid by a company fall into two tax categories depending on who pays them. Employer-paid premiums are treated as a business expense. Employee-paid portions (if any) qualify for deduction under Section 80D. Both deliver tax relief, but the route is different. The following are the 5 tax benefits Bangalore companies gain from a well-structured group health plan.

Tax Benefit 1: Employer Deduction Under Section 37(1), Full Premium as Business Expense

This is the primary tax benefit for companies. Under Section 37(1) of the Income Tax Act 1961, any expenditure incurred wholly and exclusively for the purposes of business is deductible from the company’s taxable income. Group health insurance premiums paid by the employer qualify directly under this provision.

The premium paid for the entire group health program, including base coverage, riders, and add-ons, is recorded in the profit and loss account as a business expense. This reduces the company’s net taxable income by the full premium amount, resulting in direct tax savings at the applicable corporate tax rate.

For a Bangalore mid-stage startup paying Rs 8,000 per employee per year in group health premiums for 100 employees, the total annual premium of Rs 8 lakh becomes a deductible business expense. At a 25% corporate tax rate, that translates to Rs 2 lakh in tax saved, while the employees get comprehensive health coverage.

Tax Benefit 2: Non-Taxable Perquisite for Employees, No Income Tax on Coverage Received

If an employer covers the entire cost of group health insurance, then any benefit taken by the employee is considered a non-taxable perquisite. It essentially means that even though employees get health insurance benefits, the same will not be included in their taxable income.

It’s an important point indeed. There are many other benefits that employees receive from employers, such as a car allowance, but these come with the liability of paying perquisite tax. But not in the case of health insurance coverage by the employer. Here, the employees actually benefit to the tune of Rs 5,000-Rs 20,000 annually, but none of this money goes into Form 16/taxable salary.

For HR teams, this is a useful point to communicate during appraisals and offer negotiations, the real value of the group plan is higher than the face value of the premium because there is no tax friction on the receiving end.

Tax Benefit 3: Employee Deduction Under Section 80D, On Personally Paid Portions

Employees who contribute to their group health premium, either partially or through a voluntary top-up, can claim deductions under Section 80D of the Income Tax Act 1961. The deduction applies only to the amount the employee personally pays, not the employer’s contribution.

The 80D deduction limits for the financial year are:

• Rs 25,000 per year for individuals below 60 years of age (covering self, spouse, and dependent children)
• Rs 50,000 per year for senior citizens aged 60 and above
• An additional Rs 25,000 (or Rs 50,000 if parents are senior citizens) for health insurance premiums paid for parents

For employees who buy a personal top-up plan to supplement their employer’s group coverage, the premium paid on that top-up qualifies for Section 80D deduction, provided it is for their own, spouse’s, children’s, or parents’ health insurance. This is a common structure Edify recommends for senior employees whose family healthcare needs exceed standard group plan limits.

Tax Benefit 4: Deduction on Parental Coverage Added to Group Plans

Many Bangalore companies extend their group health insurance to cover employees’ parents as an optional benefit, either fully employer-funded or with a partial employee contribution. When employees pay a portion of the parental coverage premium, that amount qualifies for a separate Section 80D deduction.

For employees whose parents are below 60 years, the additional deduction is Rs 25,000. For employees whose parents are senior citizens (60 and above), the additional deduction rises to Rs 50,000.

In practice, an employee who pays a portion of their own coverage and a portion of their parents’ coverage could claim up to Rs 50,000 in total Section 80D deductions under the old tax regime. For a senior employee in a 30% tax bracket, that translates to Rs 15,000 in direct tax saved annually.

Note: Section 80D deductions apply under the old tax regime. Employees who have opted for the new tax regime do not get this deduction.

Tax Benefit 5: Tax Savings on Preventive Health Check-Up Costs

Under Section 80D, a further benefit may accrue due to expenditures incurred for health check-ups. An individual may save up to Rs 5,000 against the total Rs 25,000 or Rs 50,000 limit available for saving under Section 80D towards expenditure made on a preventive health check-up.

Some of the recent health schemes provided by insurance providers incorporate preventive health check-ups as part of the core policy or the wellness add-on option. In case the health check-ups are made available as part of the health scheme by an employer, any payments made by employees towards them may be counted for deduction under Section 80D. If the cost of a preventive health check-up is fully covered by the employer, then the check-up would be a non-taxable perk.

For Bangalore firms running holistic employee health programs, preventive check-ups serve an important purpose besides tax benefits; that is, improving detection of illnesses at the earliest and reducing future insurance claims.

Which Companies in Bangalore Can Claim These Tax Benefits?

The employer-side deduction under Section 37(1) applies broadly across business structures. The following is a list of employer types eligible for tax benefits on group health insurance premiums:

• Private limited companies and public companies
• Startups (registered as companies or LLPs)
• Sole proprietorships and partnership firms
• Micro, Small, and Medium Enterprises (MSMEs)
• Non-profit organisations and trusts (subject to applicable tax status)

There is no minimum employee count requirement for the tax deduction itself, the premium is deductible as long as it is genuinely incurred for business purposes and properly documented in the company’s accounts.

Conclusion

The tax benefits of group health insurance are real and quantifiable, full premium deductibility for the employer, non-taxable perquisite status for employees, and 80D deduction options for those who contribute personally. For Bangalore companies managing tight budgets and competing for talent, structuring the group plan correctly can make a meaningful difference to both the tax bill and employee perception of the benefit. Edify designs group health programs that maximise coverage and align with your company’s financial structure, so the plan works well on both the HR and finance side.

Want to understand how group health insurance tax benefits apply to your company? Talk to Edify today. Our team will walk you through the numbers.

FAQs:

Q1. What are the tax benefits of group health insurance for employers in India? 

Employers can deduct the full group health insurance premium as a business expense under Section 37(1) of the Income Tax Act 1961. This reduces the company’s taxable income by the full premium amount paid for the group plan.

Q2. What are the 5 benefits of health insurance for tax purposes? 

The five tax-related benefits are: employer deduction under Section 37(1), non-taxable perquisite status for employees, Section 80D deduction on employee-paid premium portions, additional 80D deduction for parental coverage, and inclusion of preventive health check-up costs within the 80D limit.

Q3. What is the 80D deduction limit for group health insurance in 2025-26? 

Under the old tax regime, employees can claim up to Rs 25,000 (Rs 50,000 for senior citizens) for their own and family coverage, plus an additional Rs 25,000 to Rs 50,000 for parents’ health insurance. The 80D limit applies only to the employee-paid portion.

Q4. What are the benefits of group health insurance beyond tax for Bangalore companies? 

Group health insurance improves talent attraction and retention, reduces employee financial stress and absenteeism, provides pre-existing condition coverage from day one, and allows family and parental coverage that individual plans cannot match at equivalent cost.

Q5. Can employees on the new tax regime claim Section 80D deductions on group health insurance? 

No, Section 80D deductions are available only under the old tax regime. Employees on the new tax regime cannot claim them. However, the employer-side deduction under Section 37(1) and the non-taxable perquisite status for employees remain unaffected.