employer employee insurance

This query is : Resolved 

Querist : Anonymous (Querist) 30 August 2010

Q1) kindly explain the consent of Employer- Employee Insurance and also highlight the relevant sections of Income Tax Act 1961 applicable for:-

a) Tax Exemptions in Employer- Employee Policy.
b) Fringe benefit Tax is applied?
c) Assignment
d) Maturity/ Death proceeds after assignment

Q2). If assignment of Employer Employee Policy is done to the employee just before the end of 3 years how will that be possible as the surrender value for the first three years is nil as per the policy term but employee purchase the policy on Guaranteed Surrender value.

The employer –employee policy shall have surrender value of the first three years premium have been duly paid. So can one assign the policy just before the premium payment of 4th quarter of third year? How will the whole arrangement work out, especially in the terms of surrender value, please explain?

Q3. If the assignment is made for a surrender value, would the Surrender Value is taxable? And in whose hand, the Empolyer or the individual.

Q4. After the Employer- Employee policy has been duly assigned, what shall be the scenario now:-

A) Who would receive the death claims, if accurse and would be same tax free?
B) Would the maturity proceeds do the Employee who has been assigned this policy and would the same be tax free in his hand?

Dsouza (Expert)
27 February 2012

Employee's consent is needed, applicable under business expenditure 37(1).

a) Tax Exemptions in Employer- Employee Policy. Ans: Many scenarios, generally as above.
b) Fringe benefit Tax is no more but when
c) Assignment takes place ans: B & C is applied as Perk at time of assignment, currently check under section 17 etc

d) Maturity proceeds after assignment, Death proceeds take place before and after assignment if a nominee has been mentioned, this is a speciality of the scheme.

Q2). It is possible to get the proceeds later when the policy attains a value or on maturity as assigned.

The premium can be paid before the 4th year as you say and then assigned as it can be done before the 5th year too, as insurance companies accept one month in advance (check with a CFP or CPFA only if expertised in this scheme).

Q3. After assignment individual pays the tax on perks (section 17(1) on the Surrender Value.

Q4. A. Death claim is received by employee's family even before assignment if a nominee has been placed. This is the speciality of the scheme. It is tax free until the limit.
B. Maturity proceeds go to the Employee and taxed as applicable, this depends on each individual case, check with your tax consultant.

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