Planning to take Keyman Insurance Policy (KMI) for all the directors of may company.

A. I am planning to take Keyman Insurance Policy (KMI) for all the directors of may company. I want to kwon the taxability of Keyman (Individual) in case the policy is assigned to him by the company after paying a few premiums. What would be the Tax liability at the time of assignment and who will pay tax on it? will the amount by the Keyman at the time of surrender/ maturity after assignment, be considered as eligible for tax exemption under section 10(10D)? Circular no.762 is amended to provide that the amount received under KMI will not be eligible for exemption under section 10(10D). Is this circular applicable even after the policy is assigned to the individual?

Held

Paid –up value of the KMI at the time of assignment will be taxable in the hand of directors. The amount received by the directors at the time of maturity of the policy will be exempt under section 10(10D). The philosophy beyond this thinking is the after the assignment of the policy to the directors, the policy becomes an ordinary endowment policy. However, the opinion is not free from doubts. There is a possibility that the income tax department does not agree with it on the ground that once a policy is issued as KMI it remains the same even if it is assigned to the director or the employee. Circular no. 762 has not been amended.

 

INCOMES EXEMPT FROM TAX

B. Is exemption from long term capital gain on sale of share available to the foreign company? Such shares are sold through registered broker and in secondary market and security transaction tax is paid on such shares by the foreign company.

Held

If such a transaction is recorded in a recognized stock exchange in India and securities transaction tax is applicable, long term capital gain arising there from is not chargeable to tax by virtue of the exemption given by section 10(38).