Income Tax 2025

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Deduction on certain premium. ​

30(1) ​

The following sums shall be allowed as deduction in computing income chargeable under section 26, being premium paid:––

  • (a) by any assessee in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of business or profession;
  • (b) by a federal milk co-operative society to effect or to keep in force an insurance on the life of the cattle owned by a member of a co-operative society, being a primary society engaged in supplying milk raised by its members to such federal milk co-operative society;
  • (c) by the assessee, as an employer, through any mode of payment other than cash, to effect or to keep in force an insurance on the health of its employees under a scheme framed in this behalf by— (i) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 and approved by the Central Government; or (ii) any other insurer and approved by the Insurance Regulatory and Development Authority established under section 3(1) of the Insurance Regulatory and Development Authority Act, 1999.
Explanation

Section Summary: ​

Section 30(1) of the new income tax law allows taxpayers to claim deductions for certain types of insurance premiums paid. These deductions are applicable to premiums paid for insuring business assets (like stocks or stores), insuring cattle owned by members of a federal milk co-operative society, and health insurance for employees. The section ensures that businesses and co-operative societies can reduce their taxable income by accounting for these legitimate expenses.

Key Changes: ​

  1. Expanded Scope of Deductions: The new law explicitly includes deductions for health insurance premiums paid by employers for employees, provided the payment is made through non-cash modes and the scheme is approved by the relevant authorities.
  2. Clarification on Approved Insurers: The section now specifies that health insurance schemes must be approved by either the General Insurance Corporation of India (GIC) or the Insurance Regulatory and Development Authority (IRDA), ensuring compliance with regulatory standards.
  3. Focus on Non-Cash Payments: For health insurance premiums, the law mandates that payments must be made through non-cash modes (e.g., bank transfers, cheques), aligning with broader tax compliance measures to discourage cash transactions.

Practical Implications: ​

  1. For Businesses: Businesses can now claim deductions for premiums paid to insure their stocks or stores against damage or destruction, reducing their taxable income.
  2. For Federal Milk Co-operative Societies: These societies can deduct premiums paid for insuring cattle owned by their members, which supports the dairy farming sector.
  3. For Employers: Employers offering health insurance to employees can claim deductions, but only if the premiums are paid through non-cash methods and the insurance scheme is approved by GIC or IRDA.
  4. Compliance Burden: Taxpayers must ensure that payments for health insurance premiums are made through approved modes and that the insurance schemes meet regulatory standards.

Critical Concepts: ​

  1. Federal Milk Co-operative Society: A co-operative society at the national or state level that works with primary milk co-operative societies to collect and supply milk.
  2. Approved Insurers: Insurance providers approved by either the General Insurance Corporation of India (GIC) or the Insurance Regulatory and Development Authority (IRDA).
  3. Non-Cash Payments: Payments made through electronic transfers, cheques, or other traceable methods, excluding cash.

Compliance Steps: ​

  1. Maintain Documentation: Keep records of insurance premium payments, including receipts and policy details.
  2. Verify Approval: Ensure that health insurance schemes for employees are approved by GIC or IRDA.
  3. Use Non-Cash Modes: Make payments for health insurance premiums through non-cash methods to qualify for deductions.
  4. Include in Tax Returns: Report the deductions under the appropriate sections while filing income tax returns.

Examples: ​

  1. Business Insurance: A textile manufacturer pays ₹50,000 as a premium to insure its inventory against fire damage. Under Section 30(1)(a), the manufacturer can deduct this amount from its taxable income.
  2. Cattle Insurance: A federal milk co-operative society pays ₹20,000 as a premium to insure the cattle of its members. This amount is deductible under Section 30(1)(b).
  3. Employee Health Insurance: A software company pays ₹1,00,000 as a premium for a health insurance scheme for its employees. The scheme is approved by IRDA, and the payment is made via bank transfer. The company can claim this amount as a deduction under Section 30(1)(c).

By understanding and applying Section 30(1), taxpayers can optimize their deductions while ensuring compliance with the new tax provisions.