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Urgent clarification..assignment of insurance policy

Tax queries 713 views 2 replies

Employer takes life insurance policy and pays premium on behalf of employees.Employer claims the same as deduction for the purpose of income tax.After a certain period,the policy is assigned to the employees in the form of gift.

My queries are as follows

1.Whether such assignment amounts to perquisite in the hands of employees and liable to tax? Is there anything called perquisite tax? If so what is the rate? 2.Will there be any difference in taxability if the policy is assigned at the end of its tenure? 3.What are the other tax implications for the employer? Please clarify at the earliest.. 

 

Replies (2)

Hi Sowmya, I have worked in Insurance company and these are the generally accepted views.

Insurance policy should be treated as a Perk and there will be a Perquisite tax payable by the employee on it. However tax will depend on the Surrender Value of the policy at the time of assignment, which will be NIL for any term policy. For ULIP, mostly it is NIL if assignment done before end of 3 years. 

Relevant sections - 

Employer claiming tax rebate as business expense - 37 (1)

Perquisite in the hands of employee - 17(2) V

There will be no FBT impact

 

Thanks a lot sumit for your timely reply..whether the perquisite will be taxed according to the slab rate of the employee or any fixed rate of tax like 20% or 10% is applicable..


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