LIC OF INDIA EMPLOYER EMPLOYEE SCHEME

Employer Employee Scheme : When an employer takes insurance on the life of its employees, it is known as Employer-Employee insurance. It is basically an employee welfare scheme. Any Employer weather it is a individual partnership firm, Pvt Ltd company or trust can insure their employees under this scheme.


Objectives of Employer Employee Insurance :
1.Provide this as an additional benefit to the employee in order to retain the services of the Employee
2.Make provision as a welfare measure for the dependents of the employee, in case of premature death or old age provision for employee himself.
3.Provide this as an employer sponsored fringe benefit which is a valuable part of the compensation

Benefits to EMPLOYER:
1.Increase in loyalty of the Employee
2.To minimize Employee attrition rates which hurt business (The expense of recruiting and training new employees is
high).
3.Enjoy Tax Rebates on the premium paid
4.An attractive incentive to retain TALENT.

Benefits to EMPLOYEE :
1.Provides Employee with long term and short term security against premature death, illness,
2.accident/disablement.
3.In addition to benefits from company on retirement, employee gets Maturity Claim from Employer.
4.Employee need not bother about buying and administering the policy.
5.Tax-free income as claim.

Employer Employee Insurance-Interpretation of Tax Implications:
1.Premium paid by Employer is taken as business expense and is a deductible expense U/s 37(1) of IT act.
2.Premium paid by employer is considered as ‘perquisite’ in the hands of the employee and hence will become a part of income chargeable to income-tax for the employee, u/s 17(2)(V) of IT act.
3.Premium paid by employer can be claimed for IT Rebate U/s 80C by employee.
THERE ARE TWO PARTIES INVOLVED IN THE TRANSACTION ONE IS EMPLOYEE ANOTHER IS EMPLOYER EXAMPLE
Premium amount is Rs. 1,00,00,000
EMPLOYER (-) 1,00,00,000 AS BUSINESS EXPENSES U/S 37(1)

EMPLOYEE (+) 1,00,00,000 AS PERQS U/S 17 (2) V I.TAX @ 30%

EMPLOYER CAN PAY
1.TAX ON BEHALF OF THE EMPLOYEE U/S 192 (1A) ON PERQS. U/S 17
2.HENCE THE TAX LIABILITY SHIFTED TO EMPLOYER (-)30,00,000 -------------------- RS. 30,00,000 NOW TAX ON TAX ALSO WILL BE PAYABLE BY EMPLOYER 9,00,000 AND THIS AMT CAN NOT BE CLAIMED U/S 37(1)

BUT WHY SHOULD EMPLOYER DO IT?

Example : If we do not take the policy under this scheme profit of the company would have increased by Rs 1,30,00,000.
I. Tax would have been Rs 39,00,000 net profit would have been increased by Rs 91,00,000 and if the company declares this amount as dividend again dividend distribution tax @16.6% Rs15,10,600 Total tax liability of the company will (3900000+1510600)= 5410600 while we have paid only 9,00,000 NET SAVING IS 4510600.

Now If an Employer has LIC Agency : An employer will get commission (premium paid 9,00,000 *35%) 3,15,000 in first year and 7.5% 2nd and 3rd year i.e.67,500 each and thereafter 5% i.e. 45,000 till the policy gets matured.

For taking agency one has to go 25 hours training and then one has to pass the test IC-33 conducted by Insurance Institute of India and the appointment letter will be issued by LIC OF INDIA company.LIC agency is considered today as the highest paid profession in the world. It also provides one with the Royalty Income.

The Commission rates on regular premium policies are as under:
First year Commission 25%
Bonus Commission 40% of first year commission.
2nd and 3rd Year of Policy
Renewal Commission: 7.5%
4th year onwards 5%