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

Tax Treatment of Company-Owned Insurance Policy for Directors and Its Impact on Revenue Expenditure An individual inquired about the tax treatment of an insurance policy used as a retention tool by a company for its directors. The company, as the policy owner, paid premiums totaling 4,00,000 over four years, with the policy later assigned to the director. At assignment, the surrender value was 1,75,000. The director then paid additional premiums totaling 6,00,000 and received 12,50,000 upon maturity. The query sought clarity on the tax implications for both the company and the director. A response suggested treating the premium as revenue expenditure since it pertains to business activities.