Employee Employer Insurance- Income Tax treatment

[CABIJENDERKUMAR BANSAL]

One of my client company has paid for insurance policy in the name of directors i.e. employees as a retention tool.

Terms and conditions are as follows:

- Employer is the proposer and life to be assured is the employee. Employer is the policy owner and pays the premium.

-Employer has fixed condition and period by when the policy will be assigned in favor of employee.

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Is the premium paid (annual ₹ 1 lakh) eligible as revenue expenditure under section 37 to the company without any dispute??

now after 4 years of payment by company (Total Payment -Rs.4,00,000 /-), policy got assigned to employee i.e. director in his personal capacity. at that time, surrender value was ₹ 1,75,000 /-. what should be the treatment here in company's hand and in employee's hand?

After that employee pays balance 6 premiums i.e. total ₹ 6,00,000 /- and gets ₹ 12,50,000 /- as maturity amount.

Which amount should be taxable in the hands of employee? total 12,50,000 /- or ₹ 10,75,000 (i.e. net or surrender value at the time of assignment).

Thanks

[DR.MARIAPPAN GOVINDARAJAN]

The premium paid may be treated as revenue expenditure since it relates to the business.

AI Summary

Deductibility of employer-paid insurance premiums: payments may be treated as revenue expenditure when incurred for business retention purposes. Whether employer-paid life insurance premiums, where the employer is policy owner and pays premiums as a retention device, are deductible under Section 37; the reply states the premiums may be treated as revenue expenditure because they relate to the business. The document also raises but does not resolve tax consequences on assignment when the policy had a surrender value and on subsequent maturity proceeds received by the employee.