Keyman Insurance Policy

Here the term Keyman means an Employee or a Director of a Business Organization or a Professional Business. The main objective of the Keyman Insurance Policy is to compensate the Professional Businesses and Organizations to face the losses occurred to the company where in the case of premature death of its employee or director. This kind of Insurance Policy will be made on the Employee or Director by his Employer Company and obviously the premium will be paid by the employer company itself. This happens only in the case when an organization perceives that his employee or director has significant impact on the profitability of the business.

Tax Treatment

As per Circular No. 762, dated February 18, 1998 ([1998] 230 ITR (ST.12)) issued by the Central Board of Direct Taxes.

1. The Premium Policy paid by the Employee organization is allowed as Business Expenditure u/s 37 of Income Tax Act, 1961.
2. The sum received under the policy shall be taxable
   • u/s 28(iv) as “Business Profits”,If the sum received by the employer organization.
   • as “Profits in lieu of salary” u/s 17(3) (ii), If the surrender value of the policy, endorsed to its employee, or the sum is received by the employee at the time of retirement.