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Tax on Insurance by Company

C.A. Sandeep Wawhal (CA, PGDFM, BCom) (1831 Points)

12 September 2019

Dear Experts,

Our company (Pvt Ltd) has paid Life Insurance Premium (Tata AIA) of its directors. I want to know what will be tax treatment i.e.
1. whether it will be perquisit in the hand of directors for TDS ?
2. whether it is expence allowable deduction for company ?

3. whether director can clam deduction u/s 80C ?

4. and what will be accounting entry in the books of Co.?

Kindly clarify
Regards,

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5 Replies

Kapadia Pravin (17259 Points)
Replied 12 September 2019

1. Yes - it will be perquisites for a director who gets remuneration. From other Directors , this LIP payment to be recovered immdly

2. No, it's not an allowable deduction for company

3. Yes, Director can claim LIP amount under 80C individually

4. Accounting entry will be that of payment and recovery of LIP amounts. (For Remuneration paid director, LIP payment will go to Salary A/c.)

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C.A. Sandeep Wawhal (CA, PGDFM, BCom) (1831 Points)
Replied 19 September 2019

Dear Sir,

What if LIP is towards Keyman Policy ? all answers will be same or different ?

Kindly clarify

Suresh Thiyagarajan (Student) (3986 Points)
Replied 19 September 2019

If it is normal LIP,
1. It will be treated as perquisite in the hands of the employee and it will form part of employee salary and TDS will be deducted on the same.
2. It will not be allowed as a deduction in the company's hands.
3. Directors cannot claim the deduction as sec 80C specifically says "it should have paid by the assessee"
4. Director's Perquisite ( as per convenient) A/c.......Dr
To Bank A/s
If it is in the nature of Keyman Insurance Policy,
1. It will not be treated as a perquisite as no benefit is available to the employee in the above policy.
2. Yes, the policy is directly in relation to the company's future and it will be allowed as deductions.
3. Director cannot claim the deduction even in this case as it is a policy relating to the company and director have no relation to the same.
4. Keyman Insurance Premium A/c...... Dr
To Bank A/c
Please correct me if the above solution has an alternative view.

Anurag Shrivastava (Student CA Final ) (23 Points)
Replied 15 January 2020

In my opinion, In case of keyman insurance policy, The premium paid should be shown in asset side of the balance sheet and in case the maturity amount is received the same should be nullified by the reversal entry of premium paid and the excess of maturity above the premium amount should be considered as income of the company.

CA Arun Tiwari (Partner) (5855 Points)
Replied 20 January 2020

Yes, LIC paid by company can be claimed as perquisites and that will be taxable and the director can claim it under section 80c and the entry will be....

Lic of director account dr

To bank account