Can anyone please answer this question on mine:-
Can Keyman Insurance policy be treated as normal insurance policy after it has been assigned in favour of the employee by employer, for the purpose of exemptions under sec. 10(10D) and sec. 80C?
Please give opinions on the bases of some case law or notification or circulars and do mention your base of opinion too.
Thanks.
Mr.Rohit
The amount realised by the exmployee from Key man insurance policy will be taxed in the hands of the employee under the head Income From Salary being the amount of premium has been paid by the employer...
If received by the Legal heir incase of death of employee it will be taxed as Other source Income of the legal heir....
I don't think sec 10(10D) and sec. 80C is applicable here....
Dear Rohit,
Under Keyman Insurance Policy, Premium is paid by the employer..Therefore any amount received from the insurance company by the employee in such case is taxable in the hands of em[plyee as salary.
Now, what i could't understand ur query, employer transfers the policy in favour of employee ??
If u mean that say after paying premium for 2 or 3 years, the remaining premium is to be paid by employee, undoubtedly employee will get the benefit u/s 80 C ...Further, so much of the amount which is attributable to the premium paid by employee shall not be taxable as salary, beacuse of clear defination of "Profits in lieu of perks" u/s 17 reds as follows-
any payment (other than any payment referred to in clause (10) [, clause (10A)] 9[, clause (10B)], clause (11), 10[clause (12) 11[, clause (13)] or clause (13A)] of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund 12[* * *], to the extent to which it does not consist of contributions by the assessee or 13[interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
| Originally posted by : Amir | ||
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Dear Rohit, Under Keyman Insurance Policy, Premium is paid by the employer..Therefore any amount received from the insurance company by the employee in such case is taxable in the hands of em[plyee as salary. Now, what i could't understand ur query, employer transfers the policy in favour of employee ?? If u mean that say after paying premium for 2 or 3 years, the remaining premium is to be paid by employee, undoubtedly employee will get the benefit u/s 80 C ...Further, so much of the amount which is attributable to the premium paid by employee shall not be taxable as salary, beacuse of clear defination of "Profits in lieu of perks" u/s 17 reds as follows- any payment (other than any payment referred to in clause (10) [, clause (10A)] 9[, clause (10B)], clause (11), 10[clause (12) 11[, clause (13)] or clause (13A)] of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund 12[* * *], to the extent to which it does not consist of contributions by the assessee or 13[interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. |
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agree with Mr.Amir...
i didn't think this way.....but good post once again by Mr.Amir........
Dear Amir and C Balaji,
You guys got the point that if after paying 2 or 3 premiums employer transfers the policy in favor of the employee, and employee pays the rest of the insurance premium.
Sir view in Sampat Iyengar is contarary to yours as it says that keyman insurance policy remains a keyman insurance policy and the employee wont be allowed deduction u/s 80C. Also the question is in this case when the policy would mature what would be the treatment of the maturity amount received. as r Sampat Iyengar it is taxable and the employe wont get rebate U/s 10(10D) of this amount. now if you guys have something else then please tell me.
Dear Rohit,
It's maturity would be taxable but only to the extent which is attributable to the premium paid by the employer..Defination itself clarifies this thing...
As far as deduction u/s 80 C is concerned - "Keyman Insurance Policy" is ultimately a"Life Insurance Policy" & will not affect the availability of deduction.
This is what my understanding of things, I am not denying ur stand at the outset but can u plz provide that on what basis in "Sampat Iyengar" is is written that it will not be eligible u/s 80 C..
Reasons/Clarification??
Dear Rohit,
I agree with Amir regarding section 80C. The act says deduction will be allowed for ANY sums paid or deposited by the assessee to effect or to keep in force an insurance on the life of persons mentioned in subsection (4).
Insurance is further defined in sub section (8), as including
"a policy of insurance on the life of an individual or the spouse or the child of such individual or a member of a Hindu undivided family securing the payment of specified sum on the stipulated date of maturity, if such person is alive on such date notwithstanding that the policy of insurance provides only for the return of premiums paid (with or without any interest thereon) in the event of such person dying before the said stipulated date"
Hence as long as it remains a contract to insure the life of a person referred in subsection (4). Hence 80C should be allowed as pointed out by Amir, as it is an effective life insurance policy.
I concur with Sampath Iyengar regarding 10(10D).
Section 17(3)
(ii) any payment (other than any payment referred to in
clause (10), (10A), (10B), (11), (12), (13) or (13A) of section 10),
due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or “interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy”
So Amir has pointed out correctly that to the extent the income accrues in relation to employee’s contribution, the same cannot be charged under salary.
ANY sum received under a Keyman insurance policy which is not chargeable as salary, or PGBP, has to be necessarily taxed under Income from other sources, as per section 56(2)(iv).
56(2)
(iv) income referred to in sub-clause (xi) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession” or under the head “Salaries”;
So the difference between amount received by employee less any premium paid by employee for this policy has to be taxed income from other sources (because only so much is income component)
Section 10(10D) will not be available in case of such assigned policy because, meaning of Keyman insurance policy is clarified in explanation to section 10(10D) as below:
For the purposes of this clause, “Keyman insurance policy” means a life insurance policy taken by a person on the life of another person who is or was the employee of the first-mentioned person or is or was connected in any manner whatsoever with the business of the first-mentioned person
Section 10(10D) specifically exempts “any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy, other than
(b)any sum received under a Keyman Insurance Policy”
Hence, the sum received on such policy will be taxable under the heads salary and other sources, and is not exempt.
hence i agree with Sampath iyengar regarding section 10(10D)
Dear G.K.,
Ur explanation is really impressive regarding 10(10D)...
Thanks Brother.
Thanks amir bhai....
I Also Agree with G.K. and sampat Iyengar as if you read the speech of finance minister while declaring the changes in section 10(10D) in Finance act 1996, you will find that these changes are made to curb the tax planning that was going on in those days and if now the income tax department would allow the deduction U/s 10(10D) of the amount received at maturity of the assigned keyman policy then the whole purpose of bringing change in the act is nullified.
CAclubindia
