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Both Employer and employee have an insurable interest in each other. An employer may want to make
provision as a welfare measure through Life Insurance to his employees. The employer may want to use
the Life Insurance Policy as an incentive for the employees to continue his services with him. The
employer may also want to reward a select band of his employees for good services and profitability to his
institution who cannot be otherwise rewarded.
As per Section 17(2) (v) of the Income-tax Act, 1961, any sum payable by the Employer whether directly
or through a Fund other than a recognised Provident Fund or an Approved Superannuation Fund to effect
an assurance on the life of the assessee or to effect a contract for an annuity for the benefit of an
employee will be treated as a perquisite in the hands of such employee.
It means that if the employers pay or arrange for payment of the Insurance Premium on the Life of the
Employee, it can be treated as a taxable perquisite in the hands of the employee. The employer
can also show as an expenditure incurred during the year and claim tax rebate under Section 17(2) (v)
provided that the employer informs the employee that he is being insured for his benefit and that the
premium paid by the employer shall be a taxable perquisite.
Two options are available with the employer to enter into the scheme with the insurer.
OPTION No. 1 :
(a) The employee is asked to propose for a Policy on his own life and this proposal will be sent
together with a letter from the employer that the premium under the policy is paid by the
employer.
(b) If this option is exercised then no further assignment or any action on the part of the
employer is required except to remit the premium as and when due under the policy.
(c) At the end of the year, employer has to give a certificate to the employee of the amount of
premium paid by him out of his salary to claim tax rebate.
OPTION No. 2 :
(a) The Management of the Company informs the employee the provision of the Life Cover to be
taken on his Life as part of the terms and conditions of his employment.
(b) An Officer of the Company is duly authorised by the Company to sign the Proposal Form and
take such action as may be necessary to enter into a contract of Life Insurance with the
Corporation in the Life of the Employer as well as to assign the policy in favour of the
employee later.
(c) Once the policy is assigned to the employee, the employee will own the rights of the policy.
Following conditions are required to be fulfilled for entering into the scheme
Requirements
Ø Employer should confirm that Medical examination is done at the time of entry into the firm and
leave records (leave applications and medical certificates) are properly maintained
Ø Resolution of the company regarding proposing for insurance on the lives of the employees
(giving the names of the proposed employees, plan/term etc. and stating who the authorized
signatory is) with date and company seal.
Ø Salary details of the proposed life for the last 3 years
Ø Attested copies of the Audited Balance Sheet and Profit and Loss A/c of the company for the last
three years
Ø Copy of Intimation letter of the employee regarding the proposed insurance and details thereof.
Ø Report from BM/SBM with details about the strengths and goodwill of the company.