Lic premium paid for employee
This query is : Resolved
23 May 2014
Dear all,
Whether the payments made for LIC premium of the employees is allowed to claim as an expense in the company's P/L a/c?
Please suggest with necessary details.
Regards,
Deepak
Whether the payments made for LIC premium of the employees is allowed to claim as an expense in the company's P/L a/c?
Please suggest with necessary details.
Regards,
Deepak
23 May 2014
amount of LIC premium include in salary of employee . and taxable for employee. and allowed for employer if it under the employment agreement . otherwise not allowed.
23 May 2014
It is a pvt ltd company that wants to claim say Rs.8,00,000 as an expense which is a payment towards LIC premium of an employee,
So in this case is there any way where the premium won't form part of the employee's salary and the same is claimed as an expense by the company by showing in staff welfare expenses. As it had been done in case of paying premium for Keyman Insurance Policy scheme.
Please suggest.
So in this case is there any way where the premium won't form part of the employee's salary and the same is claimed as an expense by the company by showing in staff welfare expenses. As it had been done in case of paying premium for Keyman Insurance Policy scheme.
Please suggest.
02 August 2024
### **Treatment of LIC Premium Paid for Employees in Financial Statements**
When a private limited company pays LIC premiums for its employees, the treatment of these payments in the company's financial statements and tax filings depends on the nature of the policy and the purpose of the payments. Here’s how to handle such payments:
#### **1. Keyman Insurance Policy**
- **Definition**: Keyman Insurance policies are taken by a company on the lives of key employees or directors whose absence might impact the company's financial health.
- **Expense Treatment**: Premiums paid on Keyman Insurance policies are considered a business expense and can be claimed as a deduction in the Profit & Loss Account. This is because the insurance is for the benefit of the company and helps mitigate the financial impact of losing a key employee.
- **Tax Implications**: The company can deduct the premium payments under the head “Insurance Premium” or “Staff Welfare Expenses.” However, the maturity proceeds or any bonus from a Keyman Insurance policy are taxable as income under the head “Profits and Gains of Business or Profession.”
#### **2. LIC Premium for Employees (Non-Keyman)**
- **General Employee Policies**:
- **Expense Treatment**: For non-keyman policies, premiums paid by the company for employee insurance are typically classified under “Staff Welfare Expenses” or “Employee Benefits” in the Profit & Loss Account.
- **Accounting Treatment**: These expenses are deductible under business expenses and do not form part of the employee’s salary.
- **Income Tax**: The premiums paid by the company on behalf of the employees are not considered as taxable income for the employees, provided these are classified correctly as welfare or employee benefits.
- **Inclusion in Employee Salary**:
- If the premiums are directly linked to individual employees and are not part of a general employee welfare scheme, it is crucial to avoid treating these payments as part of the employees' salaries to avoid tax implications on the employees’ personal income tax.
#### **3. Reporting and Documentation**
- **Maintain Records**: Proper documentation and records of payments made for LIC premiums should be maintained.
- **Expense Category**: Clearly categorize these expenses under “Staff Welfare” or “Employee Benefits” to ensure accurate accounting and compliance.
- **Disclosure**: Disclose these expenses appropriately in the financial statements to ensure transparency and correct treatment of expenses.
#### **4. Key Points to Remember**
- **Keyman vs. Non-Keyman**: Ensure to distinguish between Keyman Insurance Policies and regular LIC policies taken for employee welfare.
- **Tax Treatment**: For Keyman Insurance Policies, premiums are deductible, but proceeds may be taxable. For regular LIC premiums, these are treated as staff welfare expenses.
- **Regulations**: Adhere to applicable accounting standards and income tax regulations while accounting for these expenses.
#### **Summary**
For a private limited company:
- **Keyman Insurance Policies**: Deduct premiums as a business expense.
- **Regular LIC Premiums for Employees**: Deduct premiums as "Staff Welfare Expenses" or "Employee Benefits." Ensure premiums are not considered part of the employee’s salary to avoid tax complications.
For precise guidance and to ensure compliance with relevant tax laws and accounting standards, consulting with a financial advisor or tax professional is recommended.
When a private limited company pays LIC premiums for its employees, the treatment of these payments in the company's financial statements and tax filings depends on the nature of the policy and the purpose of the payments. Here’s how to handle such payments:
#### **1. Keyman Insurance Policy**
- **Definition**: Keyman Insurance policies are taken by a company on the lives of key employees or directors whose absence might impact the company's financial health.
- **Expense Treatment**: Premiums paid on Keyman Insurance policies are considered a business expense and can be claimed as a deduction in the Profit & Loss Account. This is because the insurance is for the benefit of the company and helps mitigate the financial impact of losing a key employee.
- **Tax Implications**: The company can deduct the premium payments under the head “Insurance Premium” or “Staff Welfare Expenses.” However, the maturity proceeds or any bonus from a Keyman Insurance policy are taxable as income under the head “Profits and Gains of Business or Profession.”
#### **2. LIC Premium for Employees (Non-Keyman)**
- **General Employee Policies**:
- **Expense Treatment**: For non-keyman policies, premiums paid by the company for employee insurance are typically classified under “Staff Welfare Expenses” or “Employee Benefits” in the Profit & Loss Account.
- **Accounting Treatment**: These expenses are deductible under business expenses and do not form part of the employee’s salary.
- **Income Tax**: The premiums paid by the company on behalf of the employees are not considered as taxable income for the employees, provided these are classified correctly as welfare or employee benefits.
- **Inclusion in Employee Salary**:
- If the premiums are directly linked to individual employees and are not part of a general employee welfare scheme, it is crucial to avoid treating these payments as part of the employees' salaries to avoid tax implications on the employees’ personal income tax.
#### **3. Reporting and Documentation**
- **Maintain Records**: Proper documentation and records of payments made for LIC premiums should be maintained.
- **Expense Category**: Clearly categorize these expenses under “Staff Welfare” or “Employee Benefits” to ensure accurate accounting and compliance.
- **Disclosure**: Disclose these expenses appropriately in the financial statements to ensure transparency and correct treatment of expenses.
#### **4. Key Points to Remember**
- **Keyman vs. Non-Keyman**: Ensure to distinguish between Keyman Insurance Policies and regular LIC policies taken for employee welfare.
- **Tax Treatment**: For Keyman Insurance Policies, premiums are deductible, but proceeds may be taxable. For regular LIC premiums, these are treated as staff welfare expenses.
- **Regulations**: Adhere to applicable accounting standards and income tax regulations while accounting for these expenses.
#### **Summary**
For a private limited company:
- **Keyman Insurance Policies**: Deduct premiums as a business expense.
- **Regular LIC Premiums for Employees**: Deduct premiums as "Staff Welfare Expenses" or "Employee Benefits." Ensure premiums are not considered part of the employee’s salary to avoid tax complications.
For precise guidance and to ensure compliance with relevant tax laws and accounting standards, consulting with a financial advisor or tax professional is recommended.
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