Is group term life insurance taxable?

Like any insurance policy, tax benefits are applicable for group term life insurance as well. Group term life insurance tax benefits are twofold - employers and employees can both avail tax benefits. Let’s see how!

1. Payment of premium 

Employer

If the organization pays the premium completely, then they can apply for tax exemption on the premium paid. As per section 37 of IT act, employers can get tax benefits while purchasing group term plan. For employers, premiums paid for group term life insurance are generally considered a business expense and are tax-deductible. This means that the premiums paid by the employer can be subtracted from the company's taxable income, reducing its tax liability.

Employee

If the organization and the employees share the premium, then they both can file for tax exemption on the premium paid. For example, if 70% of the premium is paid by the company and 30% of the premium is paid by the employees from their CTC.
However, for employees, the premium paid by the employer for group term life insurance coverage is generally not considered taxable income. But, there are limits to the amount of coverage that can be provided tax-free. For example, if the coverage exceeds 10% of the employee's salary, the excess amount is considered taxable income.

Also Read: Group Term Life Insurance Premium Calculation

2. Death benefit

When an employee dies and the nominee receives the death benefit as a lump sum, this is not taxable. According to Section 10, clause 10D, the nominees are exempted from the lump sum money received on an employee’s demise. This means that the death benefit is not subject to income tax, regardless of the amount.

It's important to note that tax laws can change, and the specific tax benefits of group term life insurance may vary depending on the policy and other factors. It's always a good idea to consult with a tax professional for advice on specific tax implications related to group term life insurance.