Employer Employee Insurance Scheme – how to get benefited
Employer-Employee Insurance Scheme is an insurance arrangement between the two, where, the employer purchases an insurance policy for the employee. This arrangement is based on the principle that the employer has an insurable interest in his/her employees. The interesting fact is that both the employee and the employer is benefited through this arrangement.
How is it possible? let us have a detailed look.
Employer-Employee insurance scheme – who is eligible?
- Combined shareholding of the employee and his or her relatives such as a spouse, children, in-laws, parents, siblings, etc. in the employer company should not exceed 51 %.
- There should be a relationship between employer and employee as the employee earns a salary for his services provided to the employer.
- Any company, Partnership firm, or even proprietary concern shall be eligible for taking insurance for their employees under this scheme.
- Even a loss-making company can get the benefit of this scheme.
- All plans and all modes are allowed for this scheme.
E-E Insurance scheme – benefits to the employer
- The employee will feel to be more secured and honored and naturally, the loyalty to the employer is enhanced.
- It helps to minimize employee attrition rate.
- The employer is entitled to get exemptions for the premium amount (whether it is under single or non-single mode) u/s 37(1) of Income Tax act as business expenses of the firm.
- Exemption u/s 37(1) can bring monetary benefits to the company.
Read More: How to enhance benefits in Employer-Employee scheme – Specialized techniques.
Section 37(1) of Income Tax Act – Important points to remember
The deductions are to be allowed in respect of those expenses which shall satisfy the following conditions :
- The expenditure should not be of the type of expenses already covered under sections 30 to 36 of this Act.
- Expenses should have been incurred in the relevant accounting year.
- Expenses should be in respect of the business carried on by the assessee and the profits of which are to be computed and assessed and should be incurred after the business is set up.
- Expenses should not be in the nature of the personal expenses of the assessee.
- The expenses should have been incurred totally and exclusively for the purposes of the business of the assessee.
- Expenses are not of capital nature.
- The expenses are incidental to the business of the assessee and directly spring from the carrying on of it.
Employer Employee scheme -Benefits to the employees
- This scheme works as a reward programme for employees and helps in raising their morale.
- Even though the premium amount is paid by his employer, the employee can claim income tax exemption u/s 80C.
- Maturity proceeds will be available to the employee only.
- Entire maturity proceeding will be tax-free u/s 10(10D) of the income tax act.
- Insurance policy can be selected in such a way that it provides security to the employees against illness, accident/disabilities and early death.
- Death claim, if any, shall be paid to the nominee, nominated by the employee.
Two types of arrangements possible.
Two types of E-E insurance arrangements are possible.
- Type A – The employer is the proposer and employee is the Life Assured
- Type B – The Employee is the proposer and Life Assured
In these two situations, the contract will work in two different methods. Let us have a detailed look at it.
Type A – Employer is the proposer and Employee the Life Assured
- Proposal form for another life has to be used. In the case of LIC, form number 340 has to be used.
- The policy shall be assigned to the life assured (employee) as per an agreement between the Employer and Employee.
- The proposal should be signed by a person authorized by resolution.
- A separate letter mentioning the ‘object of insurance’ and the ‘restrictions’ the employer desires to impose has to be obtained.
- Book of Accounts or IT orders for the last 3 years of the company to prove the profitability. (As the premium liability lies with the company).
- The Employer should undertake to assign the policy to the Employee absolutely upon the Employee continuing to remain in employment with the Company for a period specified by the Employer.Usual period is around 3 to 5 years.
- The company can impose restrictions on the employee to prevent him from surrendering or taking loan from the policy.
The employer can continue to pay premium even after the prefixed ownership period and avail the tax benefits. If the Employee quits the job within the specified period, the Employer can either surrender the policy for its surrender value to the insurance company or absolutely assign the policy to the employee as a part of the terminal benefits.
Type B – The Employee is the proposer and Life Assured
- Proposal for own life has to be used (in case of LIC form number 300 is used)
- No need of assignment of the policy from the employer.
- Employee is the owner of the policy without any restrictions.
| Employer-Employee insurance scheme – Example of benefits | ||
|---|---|---|
| Let the premium of the policy taken under Employee scheme be 1 crore | ||
| Employer | ———————- | Employee |
| Premium of 1,00,00,000 paid by the employer on behalf of the employee |  | Premium paid by the employer is treated as perks to the employee |
 | ||
| Employer can pay income tax on behalf of the employer u/s 192(1A) on the perks of the employee |  | Rs 1 crore as perqs U/S 17 (2) V of income tax act will attract a tax of 30,00,000 @ 30 % |
| | ||
| Tax on the tax paid (Rs. 30,00,000) will also become the liability of the company. The company will have to pay an additional tax of 9,00,000 on the tax paid along with 30,00,000 tax. | ||
| | ||
| So the total tax liability of the company will be Rs. 39,00,000. | | (Employee can claim IT rebate u/s 80C on the premium paid if required.) |
Corporate Tax Rate for Domestic Companies in India
- A flat rate of 25% corporate tax is levied on the income earned by a domestic corporate.
- A surcharge of 7% is levied in case the turnover of a company is more than Rs.1 Crore for a specific financial year but less than 10 crores. If income is greater than 10 crores the surcharge will be 12%.
- 3% educational cess is levied on the tax.
Read Complete Guide on Tax benefits of Employer- Employee Scheme
Employer Employee Insurance scheme – Important points to remember
- Either the employer or Employee can be the proposer of the policy.
- If the employer is the proposer, the policy should be assigned to the employee within a reasonable period of time.
- On assignment, the total premium paid by the employer before the assignment will be treated as perquisite and will be added to the income of the employee.
- Maximum Sum Assured will depend on the financial underwriting rules and existing insurance on the life of the employee.
- Maturity amount will be tax-free u/s 10(10D) of the Income Tax Act
Employer Employee Scheme Vs Key man Insurance
It is natural to confuse E-E insurance with key man. Even though in both cases employer purchase a policy on employee, the two are very different. In key man insurance, one can only purchase term life cover. On the other hand employer-employee structures can be used for any kind of insurances.
In key man the insurance benefit on death is paid to the company and is subject to income tax. However, in employer-employee scheme the benefit is paid to the employee and is tax free.
E-E Scheme from LIC of India
Form number 340 or 300 has to be used respectively for the employer or employee being the proposer of the scheme. If form number 340 is being used the policy will have to be assigned in favour the employee within a reasonable period.
You may be also interested in:
- Top ELSS tax saving mutual funds to invest
- Top Mid cap Small Cap mutual funds to invest in 2017-18
- E-Employee scheme – Tax benefits explained
Anish L J is a ‘Financial Planner’ and member of Chartered Insurance Institute(CII), London and Insurance Institute of India. He is also a finance, insurance and software consultant. He thoroughly follows the developments in finance, insurance, and other related sectors.
Housing loan
Hi Ravikumar,
Please elaborate your comment..
Hi .. Sir have asked CA … says lic payment is taxable on maturity in employer employee .. and how does it benefit if company does not pay dividend tax …!!!??
Hi Kuntal Shah,
That information is wrong. The maturity proceedings are tax free under employer employee scheme. Your CA might have confused it with key man insurance. If dividend tax is not there the benefit could be nominal.
Hello Sir,
Thank you for the informative articleIf the policy is withdrawn after the lock in period but before the maturity term of the policy and the benefits are going to employee (while premium has been paid by employer and shown as expense to the company for 5 consecutive years) what will be the tax implication to the employee and if tax is to be paid by employee will it be on total amount withdrawn or only on total premium paid?
Tax liability is on premium paid per year only.
WHAT WILL BE THE TAX IMPLICATION AT THE TIME OF ASSIGNMENT OF THE POLICY TO THE EMPLOYEE . WILL THE EMPLOYEE HAS TO PAY TAX ON SURRENDER VALUE AT THAT TIME.
Surrender value and maturity value is not taxable for insurance policies.
I HAVE BEEN SUGGESTED BY MY INSURANCE AGENT THAT THE PREMIUM PAID BY THE EMPLOYER MAY NOT BE TREATED AS PERQ IN THE HAND OF EMPLOYEE AND THUS NO TAX HAS TO BE PAID AT THAT TIME, BUT AT THE TIME OF ASSIGNMENT EMPLOYEE HAVE TO PAY TAX ON THE SURRENDER VALUE. IS IT TRUE??
Premium paid by the employer will be treated as perqs and the tax liability is born by the employee. As the maturity amount and surrender value is not taxable no tax shall be payable by the employee or employer.
Hello sir,
But, I have got information that in 2014 one of circular issued for (Emp-employer tax benefits)37 (1) that where employer will not take benefit of Maturity as tax free. Kindly guide about circular.
As per current cenario an Employer -employee policy will be same benefits on Maturity or is it taxable???
I am not aware of such a circular. Please send it to insurancefunda.in@gmail.com
can director take policy under employer employee schme? and what is shere holding % restiction? pleae guid
It is not the director taking a policy in case of employer employee scheme. It is the employer or the company. Only restriction is that the Combined share holding of the employee and his or her relatives such as spouse, children, in-laws, parents, siblings etc. in the employer company should not exceed 51 %.
What all relatives are considered for the 51% limit?
The persons who are considered as relatives under are:-
In case of an individual
1. Spouse of the individual
2. Brother or sister of the individual
3. Brother or sister of the spouse of the individual
4. Brother or sister of either of the parents of the individual
5. Any lineal ascendant or descendant of the individual
6. Any lineal ascendant or descendant of the spouse of the individual
7. Spouse of the person referred to in above points
In case of HUF – Any member of the HUF
Dear Sir, Certain CA says that under 37(1) only keyman policy allowed employer-employer can be challenged by IT dept and it is disallowed expense.please provide the judgement in favour of assese( client) if employer employee is challenged judgement gone in favour of customer.
2) If in employer employee death of customer happens before assignment. The SA goes to company or employees and what is tax liablity
Section 37(1) benefits are available for Employer-Employee and no need to have doubt about it. I’ll do more research and give information regarding judgments soon.
2. If death happens before assignment the sum Assured go to the company but the company can pay it back to the nominee of employee and avoid tax. I am still awaiting some clarification on the tax liability of the company if it is not paid back to the employee family. Will update soon.
under Employer -employee policy is there any limit on the No. of policies . My CA has told that employer can got issue more than one policy in any one particular employee.
my CA has told that the employer can not get issue more then one policy in name of one particular employee
I don’t see any restriction on the number of policies taken by an employer any where.. On what basis CA has told that. Please share if you have any authenticate information.
As per the article it is written that Employer will get Tax relief U/S 37(1) and the Employee too will get relief U/S 80(c) , kindly explain. As is it allowed for both to get tax relief ?
In Partnership firm, Can partners take policy in his name?
Partners can take EEIS policies subject to certain conditions. Combined share holding of the employee and his or her relatives such as spouse, children, in-laws, parents, siblings etc. in the employer company should not exceed 51 %.
Hi,
As per the recent judgment of the Supreme Court that the maturity amount comes in employee hands are taxable wild premium paid by employer. As employer paid the premium and taken a taxation benefit under section 37(1) then how come employee can take 10(10)D. As all the amount treated as percusses in employee hand under section 17 of Income Tax. And same already clear by the Income Tax Auditor, there is resent case filed by one of the company and company conquer the case and paid 2Cr as Tax on that. And case study is available online. pls refer.
Need your guidance on same along with reference link and rule no. so that I can refer the same
I am not aware of such a judgement. I shall look into it and update. Please provide the details if possible to insurancefunda.in@gmail.com
I understand tax liability of the employee is taken care by the employer u/s 192(1A), also paid tax (which is considered as perquisites u/s 17(2)(iv) on said tax amount of employee, then it becomes tax free in hand of employee.
Hello,
can a proprietor of the proprietorship firm take a policy in the name of spouse or children u/s 37 (1)
Are the spouse and children partners of the firm and in that case yes. Otherwise no.
What would be the tax liability if the employer is paying for single premium pension plan on employee life where being a pension plan maturity or pension will be taxable in the hands of employee
Pension amounts or annuity received are always taxable as they are considered as the income of the beneficiary.
I am a partner in a firm. With my wife and mother as partners . I hold 52% share in the partnership. Can I take shiromani policy in my firm name and get tax benefit on behalf of the firm??
No, that is not possible. Please refer to the condition “Combined shareholding of the employee and his or her relatives such as the spouse, children, in-laws, parents, siblings etc. in the employer company should not exceed 51 %.”
Thanks for your prompt reply.
My CA tells me Otherwise, according to him I can get benefit of Shiromani policy because, though I am a 52% partner in the firm, I get a remuneration from the partnership, and because ‘remuneration’ is treated by Income tax as ‘ salary’ , I fall into category of’ Employee ‘ of the firm, and am therefore eligible for full tax deduction to Shiromani from my company account. As I am employer and employee, as I get a salary.
Thanks
Dear Sir,
I don’t think it is possible.
Thanks for your prompt reply.
My .CA tells me that according to Income Tax act, I am not only a partner in the partnership firm, but also employee since I receive remuneration which is treated as salary by Income tax . As i am given salary, I am an employee, and therefore my partnership firm can write off/ deduct from profit, entire premium paid for shiromani policy.
Pls clarify. Thanks in advance.
I DONT UNDERSTAND WHEN FLAT RATE OF 25% IS CHARGED ON PROFIT EARNED ie 10000000 WHICH IS 2500000 THEN HOW IT IS SHOWN ON 13000000
What is shown is 25% corporate tax and 5 % surcharge which add up to 30%. I think it clears your doubt.
i am talking of corporate tax and 12% extra charged levied on tax paid
Tax liability on dividend distribution = 17,96,600
(20% of 40,17,000)
Sir, Why dividend distribution tax has been calculated on tax liability amount in this calculation?
Dear Suresh,
That was a typing mistake. Thank you for notifying me the error. I have rectified the defect. It has to be 20% of 89,83,000.
Hi, can employer employee scheme be given in the name is partners? The firm has 3 parter with equal shares & drawing salary, which is shown in the individual ITR/ computation. Please advice
As long as the partners are not relatives and are drawing salary, employer employee scheme can be taken.
is this article stands true in accordance with present laws & regulations as well? My query is on tax rate, DDT etc.
It is true as per the current tax rules.
Pls review Surcharge & Cess Rate
There are some changes in the cess rate I shall update it soon.
Liability of employee is born by Employer which was 30% of 1 Cr i.e. 30L only then why
9L additional is paid by employer
Please elaborate.
As per the income tax rule, employees/employer are obliged to pay tax on the tax paid by their employers on their behalf. Thus tax liability of 9 lakh is there on the 30 lakh tax paid by the employer on behalf of the employee.
There is a news that a court verdict from Uttarakhand high court, Tax paid by an employer on behalf of employees is a non-monetary remuneration and therefore exempt from tax. As it has not come as an order I cannot comment on it.
Dear Anish ji,
i have a query regarding Employer Employee Insurance.
i wanna talk to you on phone . Please provide me your Contact Number.
Regards,
Naveen Sehgal
Ph.9258077791
Please use the comment section for your queries.. Naveen
Suppose the premium paying term is 10 years for the policy taken under Employer- Employee scheme and the employee is moving out of the company on 7th year. Now, who is eligible to avail the surrender benefit if the employer decides to surrender the policy. Also clarify whether the employer has the rights to surrender the policy during premium paying term.
The employer does not have any right to surrender the policy. Surrendering a policy is the right of policyholder only.
Hi anish ji,
If the company does not assign the policy on the name of employees & on maturity the amount is given back to employer, so what is the tax treatment of marurity value in the hands of enployer?
The policyholder is the owner of the policy and company need not assign the policy to the policyholder. The maturity value naturally goes to the policy holder.
Hello Anishji,
Please explain what will happen if an employee leaves the organisation before the maturity of the policy and in that case will it be beneficial for the company.
Regards,
Rajshree.
Hi Rajshree,
The employee is the policyholder and he can enjoy the benefits of the policy even if he is an employee or not in the company. For the employer, the advantage of providing such a policy is that it will help in increasing the loyalty of the employee towards the company. If he still leaves, it is the responsibility of the employee to pay the premium. There is no agreement that the company will pay the premium even if the employee leaves the company. As the company is not paying, there will not be any tax benefit also.
Sir , today I visit one of my client and he is query that if is save amount under this clause 37/1 and 17/2 ….could it iffacet on his gross profit at the time of business loan in future
Your question is not clear but I would like to say that there is no connection with the perks and tax on it in the future business loan of the company.
Is the maturity proceeds Taxed at the hands of the employee?
Maturity proceeds are exempted from tax under section 10(10D) as normal in case of Employer-Employee scheme also.
In case of ulip in employer employee if the policy is assing after 4 the year , what is the amount that will get added to life insured income
ULIPs do not qualify for Employer employee scheme.
Why the profit of the company is considered as 1.3 cr insteadof 1 cr
Premium paid by the company is considered as perks and company is paying tax on it. The Tax paid is 30 lakhs. If the E-E scheme is not there this 30 lakh also is part of the profit. So the total profit increases by 1 Crore + 30 Lakhs. and the total is 1.3 crores. I think it is clear.
Hi sir, I pitched this employer employee key solution to pvt ltd co. Their doubt is, if it is keyman it can be considered as an expenses.. but if it is money back savings and protection plan, anyhow they are gonna get the amount at the maturity so that should be treated as asset in P&L book know?? Then how come the tax can be deducted?? Can you please explain
The main point to be considered is that the maturity amount of Employer-Employee scheme is directly paid to the employee only and hence there is no chance that the amount will come in the profit/loss book of the company. I think it is clear.
is there a minimum number of employees that need to covered to take this policy.
Second in case of self prorietor he will be holding 100% of the shareholding. Thus will he be violating the 51% clause.
Third a person whose taxable salary is less than 10 lacs need not pay tax on perquisite- so will he pay tax in that regards and if he doesnt require to pay tax will the company be required to pay tax on tax in that matter?
fourth at the time of leaving the organisation how is the surrender value calculated esp what happens if it is a medical insurance under employer- employee
1. There is no minimum number of employees that need to be covered in this scheme.
2. A person who is a 100% shareholder cannot take policy under this scheme.
3. The person whose taxable salary is less than 10 lacs also should pay tax on prerequisite. Actually, Perqs are added to income and tax has to be paid depending on the slab of income.
4. When the employee is leaving the organization there is no need to surrender the policy. Maturity is paid to the employee like any other policy. The company no longer can claim tax benefits on the policy once the employee leaves the organization.
Dear Sir
I have read through the questions and answers in detail. I request you to share the complete detail on tax impact on employer and employee as per law. That will be very helpful.
Thanks
Thank you for your suggestion… I shall do it soon…
Employer is the proposer under employer employee scheme, policy was processed under the condition that if employee continues his services with organization for minimum 4 years, employer will assign the policy to the employee. Can this be done after 4 years of service of the employee?
In Employer-employee scheme, two types of arrangements are possible. one is the employer is the proposer of the policy and employee life assured. and the other case is the employee is the sole owner of the policy. In the first case, the employer can surrender the policy if the employee quits the job before the prefixed period.
In the second condition, the employer cannot surrender the policy.
Hi Anish Ji,
with this example that you have shared shows that employee will get benefit of Maturity amount and employer will get loyalty and retension benifit after expanding 1Cr + 30 Lac + 9 Lac= 1.39CR
if he not paid such amount for employee welfare then he will be in profit of Rs. 89.83 lac which he can distribute as dividend.
Can you make your question little more clear?
Dear Mr Abish
Is the premium paid by the employer in the name of the employee treated as perquisite in the hands of the employee? Does he have to pay tax on that even though the policy is not assigned in the name of the employee?
Premium paid is treated as perquisite. There is no question of an assignment. The policyholder is the owner of the policy even if the employer pays the premium.
Hi, I just want to have more clarity on perqusite part , if for example co is paying 2lacs per annum premium for employee then will this 2 lacs be taxable every year as perqusite in the hand of employee? And if employee salary is less than minimum taxable thresh hold even after including the above mentioned perqusite then does he need to pay any tax on perqusite?
Perqs is considered as income when income tax liability is calculated. If your total income including perquisites is below the taxable threshold you need not pay any tax.
Can company makes itself as nominee in aa Employer-Employe LIC taken on name of employee
Hi Vikas,
A company cannot be a nominee in the Employer-Employee scheme. Nomination in policy has certain guidelines which have to be followed in all the cases. Read more here.
Sir… What will be scenario if in A list employee re- assign the policy from company to individual….in condition of term.plan which gives maturity benefits with Return of premium
9988993671
Hi Ankur, Can you make your question little more clear. If the employee reassigns the policy to some other individual the employer-employee contract will become void and it will no longer be available for benefits of E-E scheme.
Hi Anish..
What will be the tax liability of the employee in case of the employer employee investment. The blog mentions that the maturity is tax free u/s 10(10)d.. Moreover, I feel that the employee will have tax liability as this is a perk to him..
My question is that how is the perk calculated? Is it calculated on surender value at the time the policy is assigned to him?
Or
It is calculated when the policy matures and the amount is paid to the employee?
Or
Each years contribution of employer will be treated as income for employee?
Perk is calculated every year and the premium paid is considered as perks and is added to the income of the employee. But the tax liability is borne by the employer itself in the e-e scheme. But the employee can claim 80c rebates on premium paid by the company.
Hello Anish Sir,
Would like to how,,,on assignment of policy in case if employee-employer insurance where employer pays the premium
Since assignment happens on surrender value,and employee needs to pay tax on notional surrender value,,,,,can there be an agreement on lower surrender value between employee-employer so that the tax liability on employee is reduced.
Also ,how come unrelated partners in partnership plan opt for employee-employer insurance,,,when a partner can’t be considered as an employee,as he is not entitled for pf and other benefits
The assignment does not happen on the surrender value. irrespective of the assignment is done or not, the surrender value increases as more premium is paid. So there is no logic in linking it with surrender value.
A partner can be treated as an employee if the board approves it. Only thing is that the shareholding should not exceed stipulated percentage.
Hi Anish sir,
I would like to know if the company pays premium for a partner and decides to assign the policy after 5 years, the policy premium term is 12 years and say premium per year is 1 lac. On 5th year say surrender value is 2.7 lac.
Now as i understand the partner,i.e the employee will pay tax on the surrender value and policy will be assigned to him and the further premiums will be paid by him and maturity will be tax free.
Am i corect in assuming that the partner pays tax?
Also do we have to mention the year of assignment while issuing policy or can we do it in 5th year?
Can nominee like wife be added at time of issuing policy or at time of assignment after 5 years?
Hi Kavish,
There is no question of paying tax on the surrender value. When the employer is paying the premium ie before assignment the premium is treated as the perks of the employee and the tax liability on perks is also borne by the company. When the policy is assigned there is no need to pay the tax on the surrender value.
Either employer or employee can continue the premium payment thereafter. in either case, the maturity benefit shall be tax-free and will be available for the employee only.
If the employer is the proposer, it has to be mentioned in advance, in which year assignment will be done by the company.
The nominee can be added at the time of taking the policy but it will not become active till assignment is done.
Hi Anish,
I have learnt from the insurance company trainers that the advantage in E-E scheme is when you assign the value you have to pay tax on the surrender value. As this surrender value is less than the total premiums paid you end up saving tax.
My questions are as follows-
1. Say a policy of 12 years payment term is assigned in 5th year.
Now tax has to be paid on the surrender value. Will the employer or the employee pay this tax?
2.Do we have to assign the policy in 1st year itself or on 5th year?
3. When can the nominees like spouse and choldchi be added?
“advantage in E-E scheme is when you assign the value you have to pay tax on the surrender value. As this surrender value is less than the total premiums paid you to end up saving tax.”
I have not come across any such information in any of the authenticated articles.
If you have any information in this regard please share it and give the source also.
Sir have sent you a mail in similar regards from
ameymidastouch@gmail.com
Need your help to get a solution out of it.
Please write your queries here so that I can reply and others also will get benefitted from it.
Thanks Anish
Anish Sir,
1)Would like to know if ulip can be proposed for employee-employer scheme
2)if yes,,,under type 1, where employer is proposer,how does assignment happen,as there is no surrender value in ulip
3)also,,will the entire fund value be taxed ,when ulip is surrendered ,,,
4)and in the case of employee-employer scheme to partnership firms,,,how can the solution be proposed when the partners are related and the holding is beyond 71%,
5)Sir,is the capping on stake holding imposed by irda or insurance companies or by income tax department.
Regards
Sundeep
I can answer your queries only after getting some more clarifications. Please be patient. I shall reply soon.
There is a similar case with our client, they had taken an insurance on the name of on of the director. Under the LTRP scheme rather employer employee. The company paid the premium of 1.5l per anum and was claimed as expense in 37 1 . but was never shown as percs in the directors balance sheet. Their bank had told them it is completely exempted and as it is activity for employee retention its not to be taxed.
the policy was taken in 2010 paid till 2015 and shall be matured till 2020.
and its not taken into the directors balance sheet.
And couple of more people have taken similar types of products and have same issues.
how and what action to take over it.
And what are the clauses or tax acts governing them.
was there any difference in tax act in 2010 and later changed
Can You clarify what is LTRP scheme? Percs need not be shown in directors balance sheet unless the director is the policyholder under the scheme. It has to be considered as the income of the policyholder and it is his headache only. My opinion is that the company need not initiate any rectification process now.
Anish Sir,
Request your help on above queries
Anish Sir,
1)Would like to know if ulip can be proposed for employee-employer scheme
2)if yes,,,under type 1, where employer is proposer,how does assignment happen,as there is no surrender value in ulip
3)also,,will the entire fund value be taxed ,when ulip is surrendered ,,,
4)and in the case of employee-employer scheme to partnership firms,,,how can the solution be proposed when the partners are related and the holding is beyond 71%,
5)Sir,is the capping on stake holding imposed by irda or insurance companies or by income tax department.
Regards
Sundeep
Sorry for the delay in replying.
1. Ulip can be used for the employer-employee scheme.
2. Surrender value is available in ULIP. Proposer(employer) can assign the policy to the employee after the prefixed period.
3. Maturity value is not taxable as in other policies under section 10(10D)
4. They are not eligible for the scheme.
5. The capping on stake is imposed by the income tax department.
Thank you for the reply
Sir, this forum has really helped me
Sir,,
Under “TYPE A” of the employee-employer scheme,,,,,PL help me the taxation at
1) assignment,,,,will the tax be paid on surrender value by the employee to income tax Dept as per his income bracket
2) at the time of Maturity under “TYPE A” ,would there be any tax on the Maturity value,as many auditors say it is taxable (if YES then on what amount)
Rgds
Sundeep
Dear Sundeep,
Regarding question 1: I have not come across any section in the income tax act demanding tax to be paid on the surrender value at the time of assignment. If you have any articles about this please send it to insurancefunda.in@gmail.com. Let me look into it.
Regarding question 2: In Type A scheme the policy has to be assigned to the employee at a prefixed time. Once the assignment is over it is as good as a type B scheme and there will not be any tax at the time of maturity. Sec 10(10D)
Hello sir
My question is, in type A of EE scheme, if the employee dies before assignment, to whom it will be paid ? And would the amount be taxable ?
If the employer dies before assignment the amount will be paid to the company. The claim amount will not be taxed. The company can decide on keeping the amount with them or transfer the entire or part of the claim amount to the employee.
Thank you sir for your reply.
One more question I have regarding this EE scheme. How the employer will get tax deferment benefit as in a post I have read the same.
I have written an article on deferring tax payment so that benefits can be enhanced. Please read the article on tax deferment and other options here.
Mr anish can term plan be opted under EE scheme and if it is type 1 EE where premium payment term is 5 yrs but risk cover till say 80 yrs then how it will work
As it is a term plan no question about maturity arises. And in case of death claim, it will go to the employer if the death happens before assignment. The death claim will go to the employee if assignment process is over before death.
Hello Sir;
I have taken Employer Employee Policy with HDFC life where employer is paying 5 lacs annual premium & where life insured is director.
After 5 year I will pay 25 lacs & surrender value is appx 13 lacs .
After 5 year if I do absolute assignment of this policy to director & director of company paid 13 lacs in company books.
As per HDFC life representative that 13 lacs will be taxable for company in that FY.
Now director runs that policy & after 15 year director will get tax free maturity.
Pls tell us our understanding is right or wrong.
If wrong then please clarify
If the policy is not assigned to you at the time of maturity and received by the employer the maturity amount will be taxable. If you again assign back the policy to the employer it will no longer be a valid Employer-Employee insurance policy.
Read more on tax implications here.
Sir, why you are deducting Rs 3900000 from R’s 5272770. I understood the calculation done to arrive both 39 Lacs & 52.72 Lacs. But, my query is how deducting this will lead to the tax saved by the Company? Why you are deducting tax paid my the employer (on behalf of the employee for perks) from the net profit? May I request you to clarify?
The tax liability of the company will be 3900000 only if the employer-employee scheme is purchased. On the other hand in the absence of the scheme, the liability will be 5272770. So the net profit of the company on purchasing the scheme is the difference between the two. I hope it is clear.
Thanks for your reply. Sir, 52 Lacs tax was arrived, when you kept the profit of the company as 1.30 crores (without EE insurance); on the contrary, 39 Lacs was arrived with EE insurance, but what I am not understanding is you have taken a premium of 1 crore but what happened to the balance 30 Lacs, which they are entitled to pay tax. Request your help to clarify.
1.3 Crores which I mentioned is not premium. It is the total liability of the company including 1 crore premium and 30 lakh which is the tax paid by the company for the premium paid. This entire amount is reduced from the profit of the company as expenses.
Is it clear?
Hi Anishji, I have two simple question
1. Is the Payment of tax by employer u/s.192(1)A is allowable for deduction u/s.37(1)? (And I am not able to understand tax of Rs.900000 on the tax of Rs.3000000 paid by employer u/s.192(1)A as in example given in your article please clearify)
2. When to assign polity to employee is benefited ? Is that attract tax to employee (tax on surrender value at the time of assignment) ?
Hi Atullumar Padia,
(1)Section 192(1)A is applicable only to prerequisite which is not provided for by way of monetary payment(Like meal coupon). So it is not applicable here. Tax paid by the employer on behalf of the employee is considered as perks and the company should pay tax on this perks amount and that is the reason I have shown 30,00,000 perks and 9,00,000 tax on it. Recently there is an Utharakhant court order to consider the tax paid on behalf of the employee should be considered as a non-monetary payment and no tax should be levied on it. Read more about it here. But I don’t think the rule has been amended based on this.
(2)Read this article to get an answer for your query.
Employer employee scheme is also applicable for 10 lakh income company?
There is no condition on the income of the company in employer-employee scheme.
Dear Sir,
Please clear two things..
1. As per our knowledge… joint share holding (including family) should be <71% and share holding of Insured person should be <51%.
2. Are all LIC policies & plans available under E-E scheme or are there any exclusion like Pension plan, etc. etc.
As per my knowledge, it is 51% for the family. Well, will try to clarify it. There is no restriction or exclusion as far as schemes are concerned.
In Employer-employee Scheme what is the minimum no of employee will work for completing the deal of the scheme? Kindly explain in details.
The employer-employee scheme does not require a minimum number of employees in a firm.
Is it partner can avail tax benefits of own life in Partnership firm.
Yes subject to the total shareholding condition applicable for the scheme
insurance company deduct 1% TDS On maturity amount of Employer Employee policies, then how maturity is tax free, sir please clarify
Have you checked this article on the tax benefit of the employer Employee scheme?
What will happen if employee resigned before assignment of policy
Usually, there will be an agreement with the employee on how the policy will be treated if the policyholder resigns in-between. The company may assign the policy in favor of the employee if the employee has completed a minimum stipulated period. Otherwise, the company can keep or surrender the policy according to their will.
There are 2 directors of the company, father and son, so the policy can be taken for the son?
It is not possible as the % criteria are not satisfied.
Hi, you have mentioned that that the director and his relations put together should not should not hold more than 51% shares of the company. I hope it is applicable for public listed companies only? Or it is applicable for pvt limited, partnership and proprietorship firms also
This rule is applicable to all firms and companies as per my information.