Employer Employee 27t3o

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EMPLOYER-EMPLOYEE SCHEME

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An Employer may like to make provision for select band of important employees through life insurance policies as a welfare measure Employers have an insurable interest in his Employees and vice-versa

EMPLOYER-EMPLOYEE SCHEME

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Employers may also wish to take insurance policies on the life of employees in order to use the insurance policy as a retention tool

IRDA circular Ref: 037/IRDA/Life/Mar 06 dated March 22, 2006 

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Vide Circular Ref: 037/IRDA/Life/Mar 06 dated March 22, 2006 the IRDA has clarified that products sold under employer-employee schemes could be other than Term Insurance. Thus, savings linked insurance policies (SLIP) can now be issued under employer-employee schemes where the Employer will hold the insurance policy on the life of the Employee.

Conditions agreed to by the Employer at the time of making the proposal 

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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; 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. However if the Employee dies within the specified period, the policy proceeds will be paid to the nominees of the Employee appointed by him at the time of the proposal. No withdrawals will be permitted to be made by the Employer. The policy document once issued will be endorsed with the special conditions and dispatched to the employer. The nomination request of the employee will be kept on record to be used at the time of a death claim.

Tax implications under the Income Tax Act, 1961 : For The Employer 

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Since the Policy is not superimposed with the words „Keyman Policy‟, it may not be possible for the Employer to claim the paid as a deductible expenditure under the „Keyman Insurance‟. However, the Employer may claim the paid as a deductible expenditure under „Salaries & Wages‟, with the treated as a fringe benefit and taxed accordingly in the hands of the employer.

Tax implications under the Income Tax Act, 1961 : For The Employee 

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Since the Employee does not enjoy the benefits of the policy during the specified period, there could be no tax implications in respect of the paid by the Employer. After the assignment, the policy takes the character of an individual policy and if the employer continues to pay the , such could be treated as a perquisite in the hands of the employee and taxed accordingly.

Section 115WB(2)(E) : Deemed Fringe Benefit In Respect Of Employees‟ Welfare  Expenditure incurred by the employer on SLIP is an expenditure on employee‟s welfare. Therefore, this expenditure shall be treated as a deemed fringe benefit under the provisions of Section 115WB(2)(E) of the Act and the same shall be liable to FBT in the hands of Employer

Section 17(2)(vi) : Perquisite Liable To FBT is NOT Liable To Tax in the hands of the Employee  17(2) – “Perquisite includes – (vi) the value of any other Fringe Benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed----”

Section 10(10)(D) 

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Any Sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy other than the exceptions (like, any Sum received under a Keyman Insurance Policy) provided therein, is exempt from income- tax payable for any of the years during the term of the policy should not exceed 20 % of the actual Capital Sum Assured

Section 41(1) – Profits Chargeable to Tax 

If under any circumstances (like termination of employment), the employer is in receipt of any sum in respect of relevant SLIP, then the same will be liable to tax in the hands of the Employer in the relevant assement year

Some Clarification 

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The expenditure on the aforesaid would have been taxable as a perquisite in the hands of the employee but for the provisions of FBT. After the introduction of FBT, such perquisite is not taxable in the hands of the employee and instead, the employer is fastened with FBT liability in respect thereof. Only an amount due, paid, or allowed to the employee from/by the employer is chargeable to tax under the head „Salaries‟

Transforming the 4 P‟s to ABCD of marketing 

Changes in the fundamentals of marketing  

A “one-size-fits-all” giving way to the “adaptation” A shift from a “segmentation” approach to “customization”

Product

Price

Promotion

Place

Brand Promise

Discovery

Communication

Anywhere

A focus on a 1-2-1 relationship

Ubiquitous channels

What does the product do for me?

Price discovery based on value

Influenced by the convergence of computing, entertainment and communication technologies

Ace Of The Pack 

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HDFCSLIC has emerged as one of the Top Three Private Life Insurers adopting Ethical Business Practices One of the most Respected Life Insurer

Need We say More ? 

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Great possibilities and opportunities are waiting to be harnessed Couple this with excellent performance of our SLIP and you would find a winning proposition in SLIP under EmployerEmployee

Sound Grounds in Our Opinion 

Note: The above are our understanding of the current provisions of the Income Tax Act, 1961. Income Tax is the subject under the purview of the Central Board of Direct Taxes and only the Central Board of Direct Taxes can comment on whether an amount would be taxable or not. HDFC Standard Life does not make any comments on the taxability or exemptions applicable under the income tax law for the amounts paid as for policies taken under the Employer-Employee Scheme. The above points are made as per the opinion of the company and the client is advised to consult his tax consultants for advice on the tax implications of the s paid under the Employer-Employee Scheme.

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