Employee Employer Policy

Hi Zuber,

Here’s a detailed answer to your queries about Life Insurance policies (Term Plan with Return of Premium - ROP) taken by an employer for employees under an Employee-Employer scheme:

1) Can the employer treat the premium paid as a business expense?

• Yes, the premium paid by the employer for the life insurance policy on employees can generally be claimed as a business expense under the Income Tax Act.

• However, it must be a genuine business expenditure and properly documented.

2) Is the premium amount paid by the employer taxable in the hands of the employee at the time of payment?

• Yes, the premium paid by the employer is treated as a perquisite (a taxable benefit) in the hands of the employee.

• The value of the perquisite is generally the amount of premium paid by the employer on behalf of the employee.

3) Is the full amount of premium added to the employee’s income as a perquisite, or some part of it?

• The entire premium paid by the employer is added to the employee’s taxable income as a perquisite.

• There is no partial exemption on the premium amount under normal circumstances.

• The employer should report this as part of the employee’s salary and deduct tax at source accordingly.

4) If accidental benefit is added as a rider, can it be exempted?

• Accident benefit or accidental death/disability rider premium paid by the employer is usually treated similarly as a perquisite.

• However, under Section 10(10D) of the Income Tax Act, the maturity proceeds or death benefit of the life insurance policy are exempt from tax (subject to certain conditions).

• But the premium paid by employer, including riders, is taxable as a perquisite when paid.

Summary:

Important: If the employer reimburses premiums directly or via salary, the same perquisite treatment applies.