(1) For better clarity the question and answer are mentioned as under
CBDT CIRCULAR
“68. Whether FBT is payable on payment by the employer for group personal Accident / Work man Compensation Insurance ?
Ans.: If the expenditure incurred or payment made by the employer for the purpose of Group Personal Accident / Workman Compensation Insurance is a statutory obligation in etrms of the provisions of the explanation to clause (E) of sub-section (2) of section 115 WB , such expenditure will not be liable to FBT. However , if such expenditure is not statutory obligation , the same would be liable to FBT.
70. Whether expenditure by the employer on Group Health Insurance or Group Medical Insurance or Group Life Insurance is Liable to FBT ?
Ans.: Expenditure by the employer on Group Health Insurance or Group Medical Insurance or Group Life Insurance is for the purpose of employee welfare and, therefore , falls within the scope of clause (E) of sub section (2) of section 115 WB of the Income tax Act . Accordingly , Such expenditure is liable to FBT . However , if such expenditure is a statutory obligation , the same would not be liable to FBT ?
(2) The questions and answer are related to
(a) Group Personal Accident
(b) Workman Compensation Insurance
(c) Group Health Insurance
(d) Group Medical Insurance
(e) Group Life Insurance
(Salient features of all types are attached herewith )
In all cases , the ownership and benefit of claim is with employee .
Thus , the benefit is passed on to employees.
(3) It policy specified in para 3 above is different from KEY MAN POLICY because ownership and benefit in the event of eventuality is with company. Salient Features of Key Man Policy is attached ( Annexure – I )
(4) In short , it has the following main features. An employer takes out an insurance policy insuring against loss of profits arising from the death, sickness or injury of a key employee. The beneficiary is the employer. The purpose of taking out the insurance is to compensate the employer for the loss of income that may result from the loss of the service of the key employee in case of death, sickness or injury.
(5) The Provision of Fringe Benefit are applicable in following conditions are satisfied :
a) Fringe Benefits are provided by an employer.
b) Fringe Benefits are provided to his employees.
c) Fringe Benefits are provided during the Previous Year .
As they no tangible present and future benefit pass on from employer to employee , second condition is not satisfied . Thus , Keyman Insurance premium should not be liable for FBT.
6) In case of Assessee (company), the ownership of the policy is with company. The Employee has no rights , benefit or claim against the said policy. Such Policy taken by the Company are similar to policy taken for protecting assets of the company. The sole beneficiary of the Product are company. similarly Keyman Policy is taken on life of employee and hence question of FBT will not arise as there is no way any benefit accrue or arise to employee . In facts the policy documents no where specified that the Employee is any way entitled to maturity benefit. In such a case how it can be said to be for the welfare of employee and liable to FBT.
7) Normally , the Life Insurance policy taken by company , the beneficiary are the employee himself. The Company is contributing the premium as a measure of incentive to retain the employee and as a additional perqusites . In case of group super annuation ,there is benefit flow from company to employee . In such case , FBT provision are excluded by way of exclusion.
But , incase of keyman Policy Contributory and Beneficiary are Company it self. Company has right to ownership and maturity proceed in case of death or term completion. Hence , the question of providing the directly or indirectly any benefit to the Employee does not arise . (policy ownership document and confirmatory letter from insurer is attached herewith )
8) Considering the above facts , how the Provision of the Fringe benefit are not applicable