by If the premium paid by the company under the Keyman Insurance policy guidelines of Income Tax, it is not taxable but the premium paid by the company towards the Life Insurance policy of the director in Individual capacity is taxable.
1. It is to be remembered that in case of assignment of a keyman insurance policy by a company/business to any person, the surrender value under such policy, including the sum allocated by way of bonus, becomes taxable as ‘Profit in lieu of salary’ by the virtue of section 17(3)(ii) of the Income-tax Act, 1961 (the Income-tax Act) i.e, at the time of assignment of the keyman policy, the surrender value is taxed as a part of the salary of the employee.
2. Section 10(10D) of the Income-tax Act provides that any sum received under a life insurance policy, including bonus, is exempt from tax. However, the above provisions, specifically exclude amount received under keyman insurance policy.
3. If a Keyman insurance policy is assigned to any person before the maturity date, the policy is not treated as a regular life insurance policy and continues to be a keyman insurance policy. Thus, at the time of maturity of the policy, the employee is not able to claim exemption under section 10(10D) of the Income-tax Act for the maturity value. This leads to double taxation to the extent of value that has already been taxed under section 17(3)(ii) of the Income-tax Act, at the time of assignment of the keyman insurance policy.