Is life insurance premium paid by employer taxable as perquisite

Any amount paid or payable by the employer whether directly or through a fund other than a recognized provident fund or an approved superannuation fund or deposit linked insurance fund to effect an insurance on the life of the assessee or to effect a contract for an annuity is treated as taxable perquisite in the hands of the employee.

Therefore, the value of the perquisite is to be included in the gross salary of the employee for income tax calculation.

Value of the perquisite in this case would be the amount that employer has incurred for employee.

Please note, in this case it will be considered as perquisites as soon as it becomes due for payment. This means, to include it as a perquisite in gross salary of the employee, actual payment of the life insurance premium is irrelevant.

For instance, if actual life insurance premium for employee is due on 1.3.2019 for the financial year 2018-19 but it’s paid on 1.5.2019,then the actual expenditure due or incurred by the employer on 1.3.2019 will be considered as perquisite in the hands of employee for the previous year 2018-19 instead of taking it to the year 2019-20.

Can tax deduction U/S 80C on life insurance premium be claimed by employees

To claim deductions under section 80C of the income tax act,1961, employee must have paid the life insurance premium during the year for self, spouse or children. It does not matter whether the child is married or unmarried, dependent or not-dependent. There is no restriction on the number of children.

In this case, life insurance premium was paid/incurred by the employer on the life of an employee. Due to this reason, we have included the value of the expenditure as perquisite in the hands of the employee. Therefore, such employee shall be eligible to claim a tax deduction under section 80C for the amount that is paid towards life insurance premium by the employer and included in the employee’s salary.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.