Lic policies of employees

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 October 2013 INCOME TAX QUERY
A PRIVATE LIMITED COMPANY IS TAKING LIFE INSURANCE POLICIES OF SOME EMPLOYEES AS PER EMPLOYEES STATUS AND COMPANY IS PROPOSER TO THE POLICIES INDIVIDUALLY.

MY QUESTION IS ABOUT TAX TREATMENT.
1.SHALL IT BE CONSIDERED AS PART OF SALARY PAID TO THE EMPLOYEES.
2.EMPLOYEES SHALL BE ABLE TO TAKE THE BENEFITS U/S 80C.
OR
3 EMPLOYER SHALL TAKE THE BENEFITS U/S 37 AND NO ADDITION TO BE EMPLOYEES SALARIES.
PLEASE SUGGEST THE TAX TREATMENT IN THE HANDS OF EMPLOYEES AND EMPLOYER.

Querist : Anonymous

Querist : Anonymous (Querist)

18 October 2013 why any expert is not interested to resolve the query

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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02 August 2024 When a company takes life insurance policies on behalf of its employees, the tax treatment for both the employer and employees can vary depending on several factors. Here’s a detailed breakdown:

### **Tax Treatment for the Employer**

1. **Premium Payment by Employer**:
- **Expense Deduction**: The premiums paid by the employer for life insurance policies taken on behalf of employees are considered a business expense. Under Section 37(1) of the Income Tax Act, such payments are typically deductible as a business expense, provided they are incurred wholly and exclusively for the purpose of the business.

2. **Accounting and Tax Treatment**:
- The premium paid for the insurance policies should be recorded as an expense in the books of accounts of the company.
- There is no need to add these premiums to the employee's salary.

### **Tax Treatment for the Employees**

1. **Policy Ownership**:
- **Tax Implications for Employees**: If the company is the proposer and the owner of the policies, the employees are not the policyholders. Thus, the premiums paid by the company are not considered as a part of the employees' salary.

2. **Benefits Under Section 80C**:
- **Employee's Deduction**: Employees cannot claim a deduction under Section 80C for the premiums paid on policies that the company owns and pays for, as the policies are not in their names.

3. **Tax Treatment of Maturity Proceeds**:
- **For Employees**: Since the policies are owned by the employer, the maturity proceeds are typically not received by the employees directly. If the maturity proceeds are paid out and the company passes on the benefits to employees, those benefits could be treated as perquisites or salary, depending on the specific arrangement.

### **Key Points**

- **If Policies are in Employees’ Names**: If the policies are in the employees' names and premiums are paid by the company, the premiums paid are treated as a taxable benefit for the employee, to be included in their salary. Employees can then claim deductions under Section 80C for such premiums.

- **If Policies are in Company’s Name**: If the policies are in the company’s name:
- **For the Company**: Premiums are deductible under Section 37.
- **For Employees**: Premiums paid by the company are not added to the employees' salaries, and employees cannot claim deductions under Section 80C for these premiums.

### **Summary**

- **Employer**: Can claim a deduction for the premiums paid as a business expense under Section 37.
- **Employees**: Cannot claim a deduction under Section 80C for premiums paid by the employer, nor do the premiums get added to their salary. If maturity proceeds or benefits are provided to employees, they might be taxed as perquisites or salary, depending on the arrangement.

**Recommendation**: It is advisable to maintain proper documentation and consult a tax advisor for specific cases, as tax implications can vary based on the exact nature of the policy and arrangements.

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