Section 37(1) of the Income Tax A1
Under Section 37(1) of the Income Tax Act, 1961, an organization can apply for tax exemption on the premiums paid for the Employer-Employee insurance plan. The employer can claim the premiums paid as a business expense, which reduces the company's taxable profits and, consequently, its tax liability.
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- Section 37(1) of the Income Tax Act Employer-Employee Insurance
Overall benefits of Employer-Employee Insurance under the Income Tax Act
There are several benefits of an employer-employee insurance plan, they are:
- Increased productivity and morale of the workforce
- Employees gain access to quality healthcare
- Attract and retain talent
- Help lower attrition rate
Tax Benefits of Employer-Employee Insurance
Section 37(1) of the Income Tax Act mentions the tax exemptions for employer-employee insurance. Let us look at these tax benefits from the employer’s and employee’s points of view.
- From the point of view of the employee:
- Employees can earn multiple benefits depending on group term life, personal accident, or group medical insurance plans.
- Employees and their families get a cover, free of cost.
- The premium for this insurance is paid by the employer; however, the employee is eligible to claim tax exemption u/s 80C.
- Complete maturity proceeding is tax exempted under section 10(10D) of the income tax act.
- Family members get financial protection in case of the unfortunate event of the death of the employee.
From the point of view of the employer:
- As per Section 37(1) of the Income Tax Act, 1961, an organization can apply tax exemption for the premiums paid towards employer-employee insurance
- This premium can be declared under business expenses, thus increasing the monetary benefits
- Such corporate-sponsored employee insurance can reduce the attrition rate
Points to Remember under Section 37(1) of the Income Tax Act - Employer Employee Insurance
The deductions or tax exemptions are allowed based on the following conditions:
- The expenditure shown should have been already covered under sections 30 to section 36 of the Act.
- The expenses must be incurred in the applicable accounting year.
- The expenses should be based on the business activity carried by the assessee. The profits of the business must be incurred after the business is set up.
- The expenses should not be personal expenses.
- Expenses are not of a capital nature.
- The expenses should be incurred exclusively for the business
Employer-Employee Cover Overview
Employee-employer insurance works on providing uniform health coverage to each member of the organisation. Such plans come complementary to the employee’s cost-to-company (CTC) since the company pays the premium on their behalf. In this manner, employees benefit from availing of such group medical or term insurance without bearing any cost on their salaries. Following are the types of plans covered under such agreement:
- Group term life insurance
- Group personal accident insurance
Who Can Purchase a Group Health Insurance Plan?
- Any private or public company, partnership firm, MSME, or sole proprietorship with at least seven employees can buy a group health insurance plan covering personal accidents and medical expenses.
- Individual employees must be legally employed by the company and between 18 to 65 years old.
- NRIs and foreign workers employed at an MNC or company in India are also eligible.
Conclusion
Under Section 37(1) of the Income Tax Act, 1961, organizations can apply for tax exemptions on premiums paid for Employer-Employee insurance plans by declaring them as business expenses, thus reducing taxable profits and tax liability. This scheme offers significant benefits, including enhanced workforce productivity, morale, and retention. It provides comprehensive health coverage and financial protection to employees at no cost to them, making it an invaluable addition to any organization's compensation package and fostering a healthier, more secure, and motivated workforce.
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