Key man insurance

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chandra sekhar (Querist)

17 December 2018 Whether a Trust or society can take a Keyman Insurance policy ? Whether the premium can be paid by the registered Trust/Society pay premium for the key members of the executives of the trust. Is the payment of insurance paid by the trust/society be treated as business expenditure of the trust. In the event of the risk circumstances the policy proceeds received by the Trust/Society be taxable ? In the event of assignng of the trust does the family member can receive the proceeds ? Whether the funds received into trust on the death of key Member executive will it be passed on to the successor of the family ? Is this income taxable in the hands of the beneficiary

chandra sekhar pvs

Z (Expert)

17 December 2018 "Whether a Trust or society can take a Keyman Insurance policy ?"
As such, there is no restriction, as it is not for their personal benefit but for the benefit to achieve the objects of the trust.

"Whether the premium can be paid by the registered Trust/Society pay premium for the key members of the executives of the trust."
Yes, it has to be.

"Is the payment of insurance paid by the trust/society be treated as business expenditure of the trust."

S.37(1) does allow for a deduction for the premium on account of key man insurance policy. However, it may be considered as an application of income u/s 11.

"In the event of the risk circumstances the policy proceeds received by the Trust/Society be taxable ?"

TL:DR -> Yes.

If S.28 is applicable then as per S.28(vi) it would be chargeable under the head of profit and gains from business and profession. This would be applicable if S.11 could not be applied.

Otherwise, any sum received under a keyman insurance policy is exempt u/s 10(10D), however, as per S.11(7), the provisions of S.10 shall not be applicable except for S.10(1) & S.10(23C) if the trust is registered at present. Therefore, it would be chargeable.
The provision is reproduced for your reference.

S.11(7) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) of section 12AA or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and the said registration is in force for any previous year, then, nothing contained in section 10 [other than clause (1) and clause (23C) thereof] shall operate to exclude any income derived from the property held under trust from the total income of the person in receipt thereof for that previous year.

"In the event of assignng of the trust does the family member can receive the proceeds ?"
What do you mean by assigning of the trust? Do you want that the benefit of the keyman insurance be given to the family of the keyman?
That would not be legal and would have the consequences.

"Whether the funds received into trust on the death of key Member executive will it be passed on to the successor of the family ? "
Not legally, In my understanding.

"Is this income taxable in the hands of the beneficiary ?"
This question might not arise.

prateek63@yahoo.co.in

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