In recent years, healthcare expenses have climbed steadily, making health insurance a vital employee benefit. Employers often offer health insurance add-ons funded by employees to enhance coverage beyond the base plan. However, the question arises about the financial impact of GST on such add-ons. While there is zero GST on health insurance premiums paid by employers, the introduction of GST on health insurance add-ons funded by employees has created a cost consideration for corporates and employees alike. Despite this, it remains important to maintain these employee-funded health add-ons. This article explores why keeping these add-ons is crucial from both financial and health security perspectives.
Understanding GST on health insurance in India
Goods and Services Tax (GST) in India applies to various financial services, including health insurance. Generally, GST on health insurance premiums attract a GST rate of 18%. However, there are specific nuances to how GST is applied:
– The base group health insurance premium paid by employers generally benefits from exemptions or no GST.
– Employee-funded health insurance add-ons attract a standard GST charge of 18%, increasing the net cost borne by the employee.
This distinction between employer-paid premiums and employee-funded add-ons causes different tax implications, influencing decisions about benefits.
The rationale behind zero GST on health insurance premiums paid by employers
The Indian government recognises health insurance as a critical welfare measure. Consequently, many employer-funded health insurance premiums are exempt from GST, supporting the objective:
– Reducing the financial burden on employees.
– Encouraging companies to provide comprehensive health benefits.
– Promoting preventive healthcare and reducing medical expenditure.
Employers paying health insurance premiums through group policies often find this approach cost-effective, as GST is not levied on such contributions.
Why employee-funded health add-ons attract GST
Employee-funded health add-ons usually cover extended benefits such as critical illness riders, maternity covers, or enhanced hospitalisation benefits. Adding GST on these components serves several purposes:
– It aligns with the government’s tax framework by applying GST on services extended beyond basic insurance covers.
– The standard 18% GST applies uniformly to add-ons to ensure consistency.
– The levy contributes to the overall government revenue stream.
This imposition leads to higher gross costs for employees who chose to enhance their health insurance cover beyond the employer’s base plan.
Benefits of maintaining employee-funded health add-ons despite GST implications
Although GST on health insurance add-ons increases out-of-pocket expenses, several compelling reasons justify continuing these plans:
Enhanced coverage reduces financial strain
Employee-funded add-ons provide more extensive health protection, covering areas like:
– Critical illnesses that are typically not included in base policies.
– Outpatient treatments, diagnostic tests, and day-care procedures.
– Maternity benefits and new-born coverage.
Such enhanced coverage cushions employees against large medical bills, preparing them to manage unexpected treatment costs better.
Promoting employee well-being and productivity
Health add-ons demonstrate a commitment to employee welfare. Comprehensive health benefits contribute positively to job satisfaction, engagement, and overall morale. A healthy and stress-free workforce translates to improved productivity and reduced absenteeism, indirectly benefiting the employer.
Flexibility in benefit selection
Employee-funded add-ons allow individuals to choose coverage aligned specifically with their personal and family healthcare needs. This personalised approach ensures employees pay only for benefits they value, optimising their healthcare investment.
Tax benefits under Section 80D of the Income Tax Act
Premiums paid for health insurance, including add-ons, are eligible for tax deductions under Section 80D of the Income Tax Act. Although GST is applicable, the total premium amount, inclusive of GST, can be claimed for deductions, partially offsetting the tax impact.
Cost-sharing between employer and employee
By funding add-ons, employees share the cost burden, enabling employers to manage overall benefit expenses. This sharing creates a sustainable model for maintaining robust group health insurance schemes.
Assessing the financial impact of GST on employee-funded health add-ons
The addition of GST at 18% increases the premium of add-ons significantly. For example, an add-on premium of Rs. 10,000 becomes Rs. 11,800 after GST. This rise might deter some employees from opting for these add-ons.
Yet, counterbalancing this increase is the improved health protection and reduced medical financial risks that these add-ons provide. When assessing value, employees should consider:
– Potential medical expenses without insurers’ extended cover.
– Tax deductions available on the gross premium paid.
– Improved access to healthcare services reducing indirect costs like loss of income.
Despite the GST, in the long run, opting for employee-funded add-ons remains financially prudent.
Employer’s perspective on managing employee-funded health add-ons
Employers face challenges in administering health insurance benefits with GST on employee-funded add-ons. However, maintaining such benefits can yield strategic advantages:
– Attract and retain talent: Competitive health benefits positively influence talent acquisition and retention.
– Promote shared responsibility: Employees actively invest in their health insurance, enhancing awareness and compliance.
– Simplify payroll accounting: Employer contributions remain GST exempt, while employee contributions including GST are handled as per statutory rules.
– Avoid benefit erosion: Removing add-ons due to GST concerns may diminish total benefits, adversely impacting employee satisfaction.
Employers must educate employees on the benefits and tax implications of these add-ons to encourage informed decisions.
Alternatives and future outlook
Given the GST on employee-funded add-ons, some corporates explore alternative welfare models such as:
– Increasing base employer-funded coverage subject to zero GST on health insurance.
– Offering wellness programmes and preventive healthcare funding.
– Negotiating with insurers for comprehensive but cost-effective packages.
Meanwhile, the government continues to balance GST policies with health insurance affordability. Future reforms may address the GST burden, promoting wider adoption of extended health cover.
Conclusion
In the Indian corporate healthcare landscape, the introduction of GST on health insurance add-ons funded by employees presents a clear financial consideration. However, the benefits of maintaining these add-ons far outweigh the additional cost. Enhanced coverage, personalised healthcare benefits, and tax advantages under Section 80D make employee-funded health add-ons indispensable. Despite GST being applicable, employers and employees should prioritise overall health security. Furthermore, zero GST on health insurance premiums paid by employers preserves the essential framework for workplace health benefits. Balancing these realities, continuing employee-funded health add-ons is prudent for protecting employee well-being and managing health-related financial risks effectively.