Keyman insurance policy
What is keyman insurance policy? what is its treatment under income tax?
Keyman insurance policy is taken on key/critical person of the company, he could be director or manager or anyone, who is most critical for functioning of the company.
Keyman insurance policy is linked to profitability of the company. Premium will be paid by the company and it will allowed as business expenditure. If that key person on whose policy is taken dies, compensation will be paid to the company.
Keyman insurance policy is important to those companies which are highly dependant on few individuals.
Tax implication -
1. Premium paid by the company will be allowed as business expenditure.
2. Under section 28(xi), any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy will taxable as business income.
3. Keyman insurance policy can be assigned to 'keyman'. When such keyman receives any sum from such policy then it will be taxable in the hands of 'keyman' as salary income, i.e. it will not be exempt u/s 10(10D)