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Keyman Insurance Policy

santosh (article) (79 Points)

17 December 2009

whether Maturity Proceeds of a KIP are exempt u/s10 jus lik LIP??

kindly help me in this.

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pushpendra (Director- FinMAT Consultants) (1703 Points)
Replied 18 December 2009

Taxation Aspects:

1. The premium paid by the employer shall be on expense for the employer and should be eligible for rebate under sec. 37(1) of I.T. Act. 1961

2. The premium shall form a prequisite in the hands of the employee u/s 17(2)(V) of I.T. Act. 1961 and will be taxed accordingly.

3. The premium will be eligible for rebate to the individual employee u/s 88 of I.T. Act. 1961

4. The maturity or death benefir ( Receivable by the nominee) will be exempt from tax U/s 10(10d) of I.T. Act. 1961

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kabirsen (student) (251 Points)
Replied 18 December 2009

the proceeds of keyman insurance are taxable u/s 28.(pgbp) for the employer.

Profits and gains of business or profession.

³⁹28. ⁴⁰The following income shall be chargeable to income-tax under the head Profits and gains of business or profession,

(i) the profits and gains⁴¹ of any business or profession⁴¹ which was carried on by the assessee at any time during the previous year ;

(ii) any compensation⁴¹ or other payment due to⁴¹ or received by⁴¹,

(a) any person, by whatever name called, managing the whole or substantially the whole of the affairs of an Indian company, at or in connection with the termination of his management or the modification of the terms and conditions relating thereto;

(b) any person, by whatever name called, managing the whole or substantially the whole of the affairs in India of any other company, at or in connection with the termination of his office or the modification of the terms and conditions relating thereto ;

(c) any person, by whatever name called, holding an agency in India for any part of the activities relating to the business of any other person, at or in connection with the termination of the agency or the modification of the terms and conditions relating thereto ;

⁴²[(d) any person, for or in connection with the vesting in the Government, or in any corporation owned or controlled by the Government, under any law for the time being in force, of the management of any property or business ;]

(iii) income derived by a trade, professional or similar⁴³ association from specific services⁴³ performed for its members ;

⁴⁴[(iiia) profits on sale of a licence granted under the Imports (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947) ;]

⁴⁵[(iiib) cash assistance (by whatever name called) received or receivable by any person against exports under any scheme of the Government of India ;]

⁴⁶[(iiic) any duty of customs or excise re-paid or re-payable as drawback to any person against exports under the Customs and Central Excise Duties Drawback Rules, 1971 ;]

⁴⁷[(iiid) any profit on the transfer of the Duty Entitlement Pass Book Scheme, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);]

⁴⁸[(iiie) any profit on the transfer of the Duty Free Replenishment Certificate, being the Duty Remission Scheme under the export and import policy formulated and announced under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) ;]

⁴⁹[(iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession ;]

⁵⁰[(v) any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from such firm :

Provided that where any interest, salary, bonus, commission or remuneration, by whatever name called, or any part thereof has not been allowed to be deducted under clause (b) of section 40, the income under this clause shall be adjusted to the extent of the amount not so allowed to be deducted ;]

⁵¹[(va) any sum, whether received or receivable, in cash or kind, under an agreement for

(a) not carrying out any activity in relation to any business; or

(b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services:

Provided that sub-clause (a) shall not apply to

(i) any sum, whether received or receivable, in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business, which is chargeable under the head Capital gains;

(ii) any sum received as compensation, from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, in accordance with the terms of agreement entered into with the Government of India

vi) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.

Explanation.For the purposes of this clause, the expression Keyman insurance policy shall have the meaning assigned to it in clause (10D) of section 10;]

ALSO PREMIUM PAID EXEMPT U/S 37

santosh (article) (79 Points)
Replied 19 December 2009

Thanks kabir..! bt dats d case when received by employer right. wat happens when received by employee??

is it exempt u/s 10(10D)??

kabirsen (student) (251 Points)
Replied 19 December 2009

an employee...does not receive keyman insurance policy amt....this is because keyman insurance policy protects the loss of co. from loss of key employee like a director...the amt is recd by co.(employer) not by the employee

1 Like

santosh (article) (79 Points)
Replied 20 December 2009

Hello kabir! i referred manoharan's book for my doubt

Therein it is said that1) if the policy matures in the hands of the person who has taken the policy, it is taxable u/s 28 as pgbp.

2)it is also said that if the policy is assigned to the employee in whose name it has been taken, then the sum is taxable u/h salaries.

3)moreover, it is said that if the policy is assigned to any other person(other than employer or employee),then it is taxable u/h ifos

my question is, in point 2 & 3 above, whether the proceeds are taxable in the hands of employer under the head salaries & income from other sources respectively? pls help me clear my doubt..

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kabirsen (student) (251 Points)
Replied 20 December 2009

i may be wrong ... but i think the benfeciary of keyman insurance policy is always the co. Where the beneficiary is nt the co. i dont think that such policies are "genuine" keyman insurance policies

1 Like

Amit (student) (27 Points)
Replied 26 December 2009

I think its taxable in the hands of the employee......under the head income frm salary...

pls do correct me...........

amitkumar (Manager) (22 Points)
Replied 08 January 2010

Let me share the information that only term assurance can be given under KIP as per IRDA directions and no maturity proceeds are payable under term assurance.

In earlier days when savings orirented plan were given under the KIP, the premium paid under the policy were being allowed as business expenditure. The maturity proceeds under the policy if received by the company will be taxed under the head of "other income".

The another option is to assigned the policy in f/o employee concerned and the surrender value at the point of time may be treated as income.