Empoly Empler PPT
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Transcript of Empoly Empler PPT
Employer Employee Insurance
The Need
Do you feel the need to…
Retain good talent and reduce attrition
Motivate performers for higher productivity
Provide welfare benefit to employees and build goodwill
Avail tax benefits
Benefit
For the Employer Retention of existing employees
Avail tax benefits under section 37 (1) for life and 36 (1)(ib) for health
For the Employees Recognition from the employer
Avail benefit on life cover or health benefit in addition to savings as a value addition on good performance
Tax benefit under section 10(10D)
The concept
The employee earns salary from the employer.
Employers have an insurable interest in the lives of employee.
Insurance premium can be paid by employer to either all employees or for a class of employees.
The employer pays premium for the employee for a specified period as a reward of good service or as a retention tool
Illustration 1 – Life Policies
XYZ organization contributes insurance premium of Rs.30000 per annum for 200 employees who are Managers and above as a retention tool. For the employer till assignment : ( On a deferred assignment )
Premium paid on the policies of covered employees : Rs. 60 Lacs/ annum
Net savings on account of diff. in tax :Rs.20.39 Lacs/annum Pre assignment surrender is taxed in the hands of the company
For the employee:Premium is not added to income as perquisitePremium paid by employee post assignment can be claimed under
section 80 C of Income Tax Act.Section 10 (10 D) benefit available on maturity value post
assignment.
Illustration 2 – Health Policies
ABC organization contributes health insurance premium of Rs.20000 per annum for 400 of their employees who are Managers and above as an employee welfare benefit.
For the employerPremium paid on the health policies of the covered
employees : Rs. 80 Lacs Net savings on account of diff. in tax :Rs. 27.19 Lacs
For the employee Premium is not added to income as perquisite Can claim under Section 80D of Income Tax Act after the
employee starts paying the premium.
List of ULIPs from ICICI Prudential
Elite Wealth
Elite Life
Pinnacle Super
( All the above products are available in four different fund options)
Eligibility
Employer is the Policy Owner (he will pay the life insurance premiums to the Insurer) and any employee (other than ‘Keyman’) is the Life Assured
The employee should not have beneficial ownership in the employer entity in excess of 51%. For ascertaining the limit of 51%, shareholding or ownership held by concerned employee, his/her spouse, and minor childern.
Family shareholding in the employer company is <71%
Employer Employee Scheme for Life Policies
Employer Employee- Life Policies
Works as a retention tool and also avails tax benefit
Proposer /Owner : Organization Premium Paid by : Organization Life Insured : Employee Beneficiary : Organization( Till assignment of policy)
Unit linked plans can be availed under this scheme.
Employer Employee Insurance
The options available to you are:
The employer is the Proposer under the policy and
assigns the policy at the inception. The employer is the Proposer under the policy and retains
the right to assign the policy (deferred assignment). The employee is the Proposer on his own life but the
premiums have been paid by the employer (third party cheque)
Employer Employee – Tax implication
For Employer-Life Policies-Deferred assignment
The premia paid by you are eligible for a tax deduction as employee welfare expenses under Section 37(1) of the Income-tax Act, 1961.
To ensure that the amount has been irretrievably spent, annuity (pension) products and products involving return of premium should not be taken under this Scheme eg Pension products, LG ROP
Death benefit received by you during the pre-assignment period will be taxable in the hands of the employer; however when the death benefits are passed on to the legal heirs, the employer can claim deduction against the ‘ex-gratia’ payment. This should be supported by resolution of Board of Directors/Partners of the employer-company/firm. Ex-gratia received by the legal heirs will not be taxable in their hands
Surrender value, if any, received by the employer will be taxable on receipt
Employer Employee – Tax implication
For Employee- Life Policies-Deferred assignment There will be no perquisite tax on the premia paid by the employer during the
pre-assignment period as the employee has no vested right during this period. However premia, if any, paid by the employer after the assignment will be taxable as perquisites in the hands of the employee under Section 17(2)(v) of Income-tax Act, 1961
Maturity/ death benefit will be tax free as per the provisions of Section 10 (10 D).
After the assignment, the employee will be entitled to exemption of benefits under the policy subject to conditions mentioned under Section 10(10D) of Income-tax Act, 1961. Employee would be eligible for a deduction under Section 80C, subject to conditions mentioned therein, in respect of the premia paid by him after the policy is assigned in his favour”.
Employer Undertakings
In case of the Deferred Assignment Option, the Employer provides the following Assignment:
To assign the policy to the employee after the specified period (5 years)
To provide the employee’s family with an ex-gratia payment in the event of the employees death during the defined tenure, this ex-gratia could be equal to or more than the Sum Assured under the said policy
Waive his rights to surrender the policy in the specified period, except in the event of termination of the employment contract within the specified period (the employer can surrender the policy )
After the date of assignment, the employee becomes the absolute owner and is directly entitled to all benefits under the policy
The employee may nominate a family member after the date of assignment
Employer Employee Scheme for Health Policies
Employer Employee Schemes on Health
Health Policies
Proposer /Owner : Employee Premium Paid by : Organization Life Insured : Employee Life Insured : Family Member( If the policy is
taken for the family member)
For the policies on the health of the Employee, The employer undertakes to pay the premium to the
insurance company directly
For the policies on the health of the family members of the employee,
The employee pays the premium and the employer reimburses.
Employer Employee – Tax Implications
For Employer for Health Policies
Deductibility of the premium paid by the employer for employee’s policy
The premium paid for the policies on the health of employees are eligible for a deduction under Section 36(1)(ib) of Income-tax Act, 1961
Taxability of premium paid by the employer in the hands of employee The premium paid by the employer for employee’s policies (either directly to
the insurance company or as reimbursement to the employee) shall not be treated as perquisite in terms of Proviso (iii) and (iv) to Section 17(2) of Income-tax Act, 1961
Employer Employee – Tax Implications Deductibility of premium paid by the employee and which is
reimbursed by the employer (for policies on the health of family members of employees)
The premium on policies on the health of employees’ family members reimbursed by the employer to the employee can be claimed as a deduction under Section 37(1) of Income-tax Act, 1961.
For Employee for Health Policies
Deduction for premium paid by the employee The employee can claim deduction under Section 80D in respect of premium paid for
policies on the health of family members. The premium should have been paid by the employee by cheque, out of his income chargeable to tax. The limit is Rs.15,000 for non-senior citizens and Rs.20,000 for senior citizens, including any other premium eligible for a deduction under Section 80D
Taxability of benefits The benefits received under the health policies can be treated as capital receipts and
hence the question of taxability does not arise. However considering that there is no precedent on this aspect and life insurance benefits are specifically exempt under Section 10(10D) whereas no specific exemption is available for Health Policies, the assessees will have to convince the tax authorities on the capital nature of such receipts.
Disclaimer
The above mentioned tax implications have been arrived at basis our understanding of the current income-tax and insurance laws, interpretations of past case-laws. However, any person intending to avail of this structuring is advised to take an independent opinion from their Tax Advisors. The author, Insurance Company or its employees or distributing Agents do not take any responsibility for the opinions expressed in this note, and are in no way responsible for any costs, losses, expenses etc. incurred by any one as a result of any decision taken based on this document. Note: Tax laws and insurance laws are subject to change.
Thank You!