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As FY 26 draws to a close on March 31, corporates across sectors are evaluating compliant mechanisms to optimise tax outgo while strengthening enterprise risk management, as they can cut down on high amount deductions facilitated under various provisions in the Income Tax Act. Insurance, often viewed purely as a protective measure, also offers substantial tax efficiency when structured appropriately.
Section 37(1) of the Income Tax Act, 1961 provides the very foundation for this treatment by allowing 100% deduction of insurance premiums incurred wholly and exclusively for business purposes, without any statutory ceiling. There are no prescribed monetary caps, as long as the outgo is driven by commercial expediency. Accordingly, this provision covers a broad spectrum of policies including group insurance policies for employees, Directors & Officers (D&O) liability cover, and Keyman insurance.
Sector-Specific Applications
For Manufacturing and Heavy Industries:
Work place hazards and asset vulnerability are key issues that manufacturers face, making insurance deductions a disproportionately powerful financial lever. Group mediclaim floaters for blue collar workers are fully deductible and are necessary for India that has around 4.5 lakh accidents on factory floors every year. Extending this coverage to employees’ dependents further strengthens workforce security and significantly improves retention, all without increasing fixed payroll costs.
Deductibility for keyman insurance over production heads or engineers ensure payouts exempt in case of assignment, with recent tribunal precedences for auto plants, steel plants, and chemical plants. Comprehensive “All-risk” covers for plant, property and machinery (PPM), including the refined parametric flood insurance solutions introduced in 2025, help mitigate large-scale operational losses while remaining fully deductible.
For IT, Tech, and Services Sectors
In a high attrition environment, employee-centric insurance products like super top-up health insurance would provide support to retention related activities without impacting the labour roll. Cyber liability insurance, which is vital as threats online increase in frequency, and D&O insurance for top management remain a valid business expense. Employer superannuation contributions under Section 36(1)(iv) allow for tax-deferred benefits within prescribed limits.
For Energy and Infra
To mitigate the growing impact of climate volatility, players in the energy and infrastructure sectors are increasingly relying on risk-transfer instruments that also qualify as legitimate business expenses. Parametric covers for wind and solar downtime, as well as pipeline ruptures, help absorb climate-linked disruptions while remaining deductible. In parallel, group medical covers for contractual labour ensure compliance with evolving regulatory frameworks, including IRDAI’s 2026 mandates.
Insurance, when deployed strategically, achieves benefits that go beyond risk management. Insurance helps achieve real tax benefits, enhance liquidity, secure workforce stability, and protect business continuity without increasing fixed operating costs. As corporates undertake year-end tax planning, insurance must also feature as a considered element in financial and risk management strategies.
As companies today are moving towards better governance standards, insurance should be looked at instrument, which not only provides protection to employees but also helps the companies with tax benefits. Insurance thus can be looked at by corporates both as talent acquisition as well as talent retention strategy, and which helps companies with their financial strategies too. Well-structured insurance programmes enable companies to convert statutory expenses into strategic capital protection. Companies including insurance into their tax planning frame work will thus build long-term resilience, stakeholder confidence and growth.
Disclaimer: The contents of this article are for informational purposes only and should not be construed as professional advice.
BY: Jitendra Shah, Chief Financial Officer (Finance & Accounts), Alliance Insurance Brokers.
