Assignment of keyman insurance policy at surrender value

This query is : Resolved

parish (Querist)
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12 January 2019 Dear All,

We have taken Keyman Insurance policy in the company in the name of director.That policy will be matured in March 2020.

Can we assign the policy to director in whose name it is taken?
What will be tax implications in the hands of company at the time of assignment and on what amount?
What will be tax implications in the hands of assignee at the time of maturity and on what amount?

Regards,Parish

Z (Expert)
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18 January 2019 Yes, the policy can be assigned, but as per S.17(3), Salary shall include, inter alia, any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

Extracts from Memorandum to Finance Bill 2013,
It has been noticed that the policies taken as keyman insurance policy are being assigned to the keyman before its maturity.
The keyman pays the remaining premium on the policy and claims the sum received under the policy as exempt on the ground
that the policy is no longer a keyman insurance policy. Thus, the exemption under section 10(10D) is being claimed for policies
which were originally keyman insurance policies but during the term these were assigned to some other person. The Courts
have also noticed this loophole in law.
With a view to plug the loophole and check such practices to avoid payment of taxes, it is proposed to amend the provisions
of clause (10D) of section 10 to provide that a keyman insurance policy which has been assigned to any person during its term,
with or without consideration, shall continue to be treated as a keyman insurance policy.

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