Keyman Insurance Policy has, for long been an easy way to pass on tax free benefits to the key managerial personnel of an organisation.
Just as a company insures its lands, building and other assets, it can insure its human resources as well so that it can compensate itself for loss of human assets.
Earlier the companies and senior management have misused the concept for personal tax free benefits. For Keyman Insurance Policies, the companies pay the premium and any sum received from the Insurance company on maturity or on the death of the employee including bonus, if any was considered to be taxable income in the hands of the employer under the head Income from Gains from Business / Profession (PGBP).
However, most Insurance policies allow assigning the policies to the insured himself and the companies used to assign the policy to the managerial person himself. In this case, the policy did not remain a Keyman Insurance Policy and became a normal Life Insurance policy. The maturity amount was received the insured himself (or his legal heir on his death) and became tax free at the hands of the recipient.
Budget 2013 has amended the law and now the Keyman Insurance Policy will remain the Keyman Insurance policy throughout its tenure regardless of the assigning of the policy.
Just as a company insures its lands, building and other assets, it can insure its human resources as well so that it can compensate itself for loss of human assets.
Earlier the companies and senior management have misused the concept for personal tax free benefits. For Keyman Insurance Policies, the companies pay the premium and any sum received from the Insurance company on maturity or on the death of the employee including bonus, if any was considered to be taxable income in the hands of the employer under the head Income from Gains from Business / Profession (PGBP).
However, most Insurance policies allow assigning the policies to the insured himself and the companies used to assign the policy to the managerial person himself. In this case, the policy did not remain a Keyman Insurance Policy and became a normal Life Insurance policy. The maturity amount was received the insured himself (or his legal heir on his death) and became tax free at the hands of the recipient.
Budget 2013 has amended the law and now the Keyman Insurance Policy will remain the Keyman Insurance policy throughout its tenure regardless of the assigning of the policy.
If the policy is not assigned, all amounts received by the employer is taxed under
PGBP (same as before).
If the policy is assigned, it is taxable in the hands of the
employee under Income from Salary.
If the policy is assigned and the employee dies, the amount
is received by the legal heir of the employee and is taxed as Income from Other
Sources.
Any company that relies on the people within the business to make money should probably have key man insurance in place. If your company revolves heavily around one or two people then they most probably should be covered by key man insurance.
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ReplyDeleteHi Vikash - Pl confirm if this rule applies to Employer Employee Insurance plans too. Are they considered the same as Keyman policies?
ReplyDeleteVignesh, Cochin Kerala