Keyman Insurance Policy

Tax queries 1640 views 2 replies

Sagar Kulkarni

Articled Assistant

85 Points Joined January 2010

Somebody please answer my following queries regarding Keyman Insurance Policy :

1) Suppose the policy is assigned to Key employee or his family and the employer continues to pay the premium. Is the amount of premium still deductible u/s 37(1) considering that it is the keyman or his family and not the employer paying the premium who would receive the amount on maturity/ death of the Keyman?

2) If the policy is assigned to Keyman and the Keyman undertakes to pay the premium, then is such premium liable to deduction under Chapter VI-A?

3) Can the employer receive the policy assured amount on the resignation of Keyman, considering that resignation is an event leading to loss of Keyman?

Replies (2)

CA PARAS BAFNA

Practising CA

33428 Points Joined April 2009

1. Assignment of Policy to Keyman:

The policy can be assigned to keyman. The surrender value at the time of assignment will be taxable in the hands of keyman as "Profit in lieu of Salary"

After assignment the company's payment towards premium will be taxable in the hand of keyman as perquisite and the expenditure will be allowed as deduction to the company.

Keyman can claim deduction under Section 80C (as it is deemed that the amount is being paid out of his income). Basically it depends upon the terms of employment and such I think that the expenditure willbe allowed to the company.

2. Yes- he is entitled to claim deduction U/s 80C

3. The company will receive surrender value which is taxable.

Further...

If company receives any amount after the maturity of policy it will be taxable in the hands of the company.

If employee receives the amount after surrendering the policy in his name, as discussed in para 1 above, section 10(10D) benefits are available.