Business Insurance Training PDF

Training on Business Insurance Solutions HDFC Life: For internal training purpose only, not for solicitation. What is Business Insurance? Business Insurance solutions give financial protection to businesses from losses that may occur during the normal course of b...

Training on Business Insurance Solutions HDFC Life: For internal training purpose only, not for solicitation. What is Business Insurance? Business Insurance solutions give financial protection to businesses from losses that may occur during the normal course of business Covers Protects from employee legal liabilities related risks Protects Protects organization’s Key Employees interests Offers value based planning Valuation Protection Increases Credibility and Profit Protection Goodwill of Business HDFC Life: For internal training purpose only, not for solicitation. Types of Business Insurance Solutions Keyman Partnership Employer Insurance Insurance Employee HDFC Life: For internal training purpose only, not for solicitation. Where will you sell business insurance solutions? Medium, Small and Micro Enterprises They are major contributors to India’s GDP, exports and are crucial for our socio-economic development These enterprises are broadly categorized into:  Manufacturing firms  Service firms HDFC Life: For internal training purpose only, not for solicitation. This is a large market for you to tap and succeed 6.3 Cr Recorded MSMEs in India as of FY 23 30% Contribution of MSMEs to the GDP People are employed in MSMEs which is 11 Cr ~40% of the total work force 95% Industrial units are MSMEs 50% The total exports done by MSMEs MSME budget allocation for FY23-24, an ₹ 22,138 Cr increase by 42% Source: Press Information Bureau, Government of India, investindia.gov.in HDFC Life: For internal training purpose only, not for solicitation. Types of Business Insurance Solutions Keyman Partnership Employer Insurance Insurance Employee HDFC Life: For internal training purpose only, not for solicitation. Who is a Keyman? Keyman is a senior-level executive whose services contribute substantially to the success of the business. HDFC Life: For internal training purpose only, not for solicitation. What is Keyman Insurance? A Proposition to Mitigate Business Risks The death of a key employee may lead to the following losses to a business:  Loss of earnings Keyman insurance is an important  Loss of specialized skills form of business insurance that  The cost of recruiting and training a new recruit compensates businesses for financial  Loss of assets built over many years losses that would arise from an untimely  Loss of an opportunity to expand in future death or absence of an important member of the business / firm.  Loss of stable management  Reduction of creditworthiness (recall of loans) Keyman Insurance compensates with a fixed sum assured as specified in the insurance policy; does not indemnify against the actual losses incurred. HDFC Life: For internal training purpose only, not for solicitation. Examples of untimely demise of high-level executives Singer India’s Board of Directors included Rakesh Jhunjhunwala Rakesh Jhunjhunwala, held 6.95% stake in Singer India Limited (worth INR 37.06 crores) when he passed away suddenly after a brief illness on August 14, 2022. Ambareesh Murthy was the CEO of As seen in these Pepperfry Limited examples, it’s vital for CEO Ambareesh Murthy had ₹51.54 crores total share companies to have better holding in Pepperfry when he suddenly passed away in business risk mitigation measures offsite on 7th August 2023 to deal with such unforeseen eventualities. Sanjay Shah was the CEO of Vistex, a software firm in the U.S. Tech entrepreneur Sanjay Shah, founder and CEO of the Chicago-based global software company Vistex, Inc.—was tragically killed on Jan. 18 2024 in India, after an accident during the firm’s 25th anniversary celebration for Vistex Asia Pacific. He was 55. HDFC Life: For internal training purpose only, not for solicitation. How does Keyman Insurance work? (1 of 2) Working Premiums Business Death benefit that compensates Insurance for loss of key person Company A Key Person can be:  Owner Insurable Interest  Top Executive Key  Any individual considered crucial to the business, whose Person death or long-term absence, will have a bearing on the profitability of the business HDFC Life: For internal training purpose only, not for solicitation. How does Keyman Insurance work? (2 of 2) Employee is the life Conditions: Employer assured pays the  Keyman need not hold the highest position premium or any specialized professional qualification  Keyman includes ‘key woman’  There can be more than one Keyman Receiver of within a business Life to be Premium Policy Proposer the policy Insured Payor Owner proceeds Employer Keyman Employer Employer Employer HDFC Life: For internal training purpose only, not for solicitation. Benefits of Keyman Insurance  The business gets a sum assured when a claim is raised. The sum assured helps in coping with financial loss, if any  Strengthens the business’s working capital and balance sheet  Businesses can save tax, reinvest that amount in own business and earn more profit  Businesses can attract and retain valuable employees / directors / Keyman  Helps assure creditors and suppliers of the continuity of business Keyman can also safeguard his immediate family from financial losses in case of untimely demise HDFC Life: For internal training purpose only, not for solicitation. Death Benefit in Keyman Insurance Business proposes the policy Death Benefit is received by the company and is on the life of the Keyman, Employee dies treated as income under the head “Profits & Gains pays the premiums and gets during the policy of Business or Profession” u/s 28(vi) of the Income the benefit of section 37(1) tenure. Tax Act, 1961. The company may choose to utilize as revenue expenditure. this amount in two ways. Scenario 1 Scenario 2 The company makes an ex-gratia Company retains the Death Claim and payment in the same financial year to utilizes the money for the losses incurred the widow or legal heir of the Keyman. due to the death of a Key person and induction of a new key employee. Any lump sum amount paid gratuitously by way of compensation to the widow or legal heirs of employee, on death of the employee by his employer shall not be taxable as per the CBDT circular no. 573 dated August 21, 1990. Note: HDFC Life will deduct TDS at the time of paying the death proceeds HDFC Life: For internal training purpose only, not for solicitation. Eligibility Criteria Who could be eligible to be Keyman Keyman Insurance is NOT available to the following categories of businesses  The Keyman should hold less than 25%  Proprietary firms / Trusts or Charitable of the company’s shares. Institutions  The total number of shares held by the  Firms where the Keyman holds more Keyman and family* together should be than 25% shares and where the keyman less than 75% of the company’s shares. and family holds more than 75% of shares  Valid proof of the critical role that the proposed life (Keyman) plays in the  Where the firm is not making profit for 3 business of the company is required. years or where turnover of the company are on decline  Cover is provided only up to the Keyman attains the age of 65 years (can go beyond subject to underwriter’s approval on a case to case basis) *Family includes spouse and minor children only. HDFC Life: For internal training purpose only, not for solicitation. Calculation of SA in Keyman Insurance The maximum sum assured of Keyman insurance is the lower of: 10 3 5 Times Times Times Keyman’s annual The average gross The average net compensation profit of the company profit of the company package in the past 3 years in the past 3 years HDFC Life: For internal training purpose only, not for solicitation. Documentation in Keyman Insurance Here is an indicative and not exhaustive list of the mandatory documents required for Keyman Insurance: Copy of Memorandum and Articles of Association of the company Keyman supplementary questionnaire Board resolution of the company Annual reports / Business Accounts (Income Tax Returns with Audited Balance Sheet and Profit & Loss Accounts) of the company of the last 3 years KYC of the Keyman HDFC Life: For internal training purpose only, not for solicitation. What if a Keyman resigns and joins another organisation? The first employer, who has bought the Keyman policy, can choose any one of the following options:  The first employer can stop paying the premiums and allow the policy to lapse.  The policy could be transferred to the new employer of the Keyman on terms mutually agreed upon by both the companies.  The policy can be assigned in favour of the life assured / Keyman. However the nature of the policy will remain the same and if death claim arises then the death benefit in the hands of widow/legal heir will be taxable HDFC Life: For internal training purpose only, not for solicitation. Products offered under Keyman Insurance Super & Elite Sanchay Legacy Saral Jeevan Bima  Only full underwriting product variants are allowed  Only Life and ROP variants are allowed  Accelerated Death Benefit option is also allowed  Riders allowed are Accidental Death Benefit and Term rider HDFC Life: For internal training purpose only, not for solicitation. Types of Business Insurance Solutions Keyman Partnership Employer Insurance Insurance Employee HDFC Life: For internal training purpose only, not for solicitation. What is a Partnership Business? A partnership business is jointly owned by many parties and largely has the following characteristics:  It is a formal arrangement but is not a corporate entity  Can be of any one of the three types:  general partnership  limited partnership  limited liability partnership (LLP)  Labour and resources are shared  Profits and losses are shared  Operations are overseen by the partners  Tax benefits are higher compared to a corporation  Partners are liable for any business debt HDFC Life: For internal training purpose only, not for solicitation. How does Partnership Insurance work? Conditions:  A partnership firm has an insurable interest Individual on the lives of each partner to the extent of Partners the amount of purchase money, Partnership equivalent to the share of each partner. Firm  Only term policies can be taken under partnership insurance. Life to be Premium Proposer Policy Owner Insured Payor  Insurance cover is given only if it is clearly Partnership Partnership Partnership mentioned in the Partnership Deed that it is Partner Firm Firm Firm an irrevocable partnership. HDFC Life: For internal training purpose only, not for solicitation. Benefits of Partnership Insurance Benefits to Families of Benefits to the Benefits to the the Deceased Partners Partnership Firm Surviving Partners  Hassle-free settlement of claims  Ensures business continuity  Protection of business interest  Smooth transition of business  Promotes goodwill of the firm  Smooth transition of business  The successor of the deceased is  Protects against disruption  Liquid capital to settle accounts not obliged to become involved with the family of the deceased in the business  Funds made available immediately partner on the death of a partner  Funds to buy out a deceased  A means to overcome any debt left partner’s share behind by the deceased partner  Gives confidence to lenders HDFC Life: For internal training purpose only, not for solicitation. Tax Implications in Partnership Insurance All the premiums paid should be considered for deduction At the time of premium as business expense under section 37(1) of the Income payment tax Act, 1961 Death Benefit is paid to the Partnership firm. Such proceed At the time of death under partnership insurance will be treated as Business claim Income under section 28(vi) of the Act and will be taxable In the event of death post assignment: Death proceed Policy assignment to the received by legal heir will be treated as income from other Partner* sources and will be taxable *Only in the event of partner/s (LA) exiting the firm along with the consent of all other existing partners and subject to underwriters approval HDFC Life: For internal training purpose only, not for solicitation. Rules to Calculate Sum Assured in Partnership Insurance The maximum sum assured for an employee with a stake in the firm is based on: Average of 2 years Average of 2 years Net Profit x 5 Gross Profit x 3 Financial viability similar to individual 01 viability (Whichever is less) Percentage of share-holding profit will  As a rule, depreciation should not be allowed 02 be added to his / her individual viability  Maximum sum assured per partner cannot exceed the capital contribution by the respective partner Risk cover calculated should include existing cover  Final eligible sum assured would be divided amongst all partners of the firm from all insurers as per their respective profit sharing ratio  NOC from other partners to be taken if life insurance cover is being taken on one partner  Nomination is not allowed HDFC Life: For internal training purpose only, not for solicitation. Eligibility Criteria, Documentation and Conditions Eligibility Criteria Documentation Terms and Conditions  Profitability of the business in the last 3  Partners’ individual Income Tax  Allowed only on the lives of the financial years Returns and Computation of Income partners  Existence of business license from  ITR of the firm and audited Profit and  Issued in the name of the partnership appropriate authorities Loss Account Balance Sheet firm only  Existence of Partnership Deed clearly  Audited capital account statements of  Cannot be assigned to any person identifying which partner owns how all the partners other than the partners much share of the business  Partnership supplementary  Can be offered to active partners only questionnaire  All partners will have to apply together.  Copy of Partnership Deed  There is no cap on shareholding Note: ITR, COI, Balance Sheet: All of the last 3 assessment years. HDFC Life: For internal training purpose only, not for solicitation. Products offered under Partnership Insurance Super & Elite Sanchay Legacy Saral Jeevan Bima  Only full underwriting product variants are allowed  Only Life and ROP variants are allowed  Accelerated Death Benefit option is also allowed  Riders allowed are Accidental Death Benefit and Term rider HDFC Life: For internal training purpose only, not for solicitation. Activity: Compare between Keyman and Partnership Insurance KEYMAN INSURANCE PARTNERSHIP INSURANCE Objective Who pays Beneficiary Death Benefits paid to Tax treatment for Company/Firm If Assigned (subject to U/W) Types of Products offered HDFC Life: For internal training purpose only, not for solicitation. Activity: Compare between Keyman and Partnership Insurance KEYMAN INSURANCE PARTNERSHIP INSURANCE To provide financial protection to To provide financial protection to a Objective the business (company/firm) in case of partnership business in case of an an unexpected death of a key person unexpected death of a partner Who pays  Company  Partnership firm Beneficiary  Company  Partnership firm Death Benefits  Company  Partnership firm paid to Tax treatment for a) Premiums paid will be considered as business expense under section 37(1) Company/Firm b) Death Benefit will be treated as business income under section 28(vi) If Assigned Death benefits will be taxable in the hands Death benefits will be taxable in the hands of the (subject to U/W) of the legal heir(s) of the deceased Key man legal heir of the deceased Partner Types of Full underwriting pure term products Full underwriting pure term products Products Offered with ADB and Term rider with ADB and Term rider HDFC Life: For internal training purpose only, not for solicitation. Types of Business Insurance Solutions Keyman Partnership Employer Insurance Insurance Employee HDFC Life: For internal training purpose only, not for solicitation. What is Employer Employee Insurance? Employer Employee is based on the As a benefit scheme, an Employer principle that the employer has an takes life insurance on the life of the insurable interest in his / her designated employee employees and may include:  Group Insurance – Where a whole group of employees are insured by the employer  Individual Insurance On Survival On Death Employee receives Nominee / legal heir of the maturity benefit the employee is paid the death benefit HDFC Life: For internal training purpose only, not for solicitation. Who is considered to be an Employee? An employee is one who People who are not employees Draws a salary Proprietor of a Proprietorship Firm Bank statement shows Partners in a Partnership Firm salary credits Reports income under the head Contractual Employees ‘Income from Salary’ in the Income Tax Return form Employees on daily pay Receives Form 16 from the employer Trustee of a Trust Form 26AS shows tax deduction on salary HDFC Life: For internal training purpose only, not for solicitation. Which types of companies can opt for Employer Employee schemes? Proprietorship Limited Liability Public Limited Partnership Firm Partnership Company Firm Co-operative Private Limited Trusts Society Company HDFC Life: For internal training purpose only, not for solicitation.  Types of Employer Employee Schemes Special conditions:  Lock-in period is defined by the employer at inception for both the schemes Employee  In case of LTRP is the life Policy is re-assigned to the employee after Employer assured the lock-in period is over pays the premium Post re-assignment the payor of the remaining premium (if any) will be the employee Receiver of  In case of EE2 Life Premium Type Proposer the death Policy Owner Ownership changes once the lock in period Assured Payor benefit is over Post change of ownership the payor of the Employer remaining premium (if any) will be the (within lock-in) Employer employee Employee Employer Employee Employer Employer Legal heir / (Scheme 2)  Policy shall not be assigned to any one else nominee (post lock-in) except the employee Policy will be  Loan(s) Long Term Can be given to the employee in both the conditionally Reward Only Legal heir assigned to the schemes once the lock-in period is over and Program for Employee Employee Employer or nominee Employer the policy is assigned back to the employee Employee immediately post Cannot be given to the Employer in both (LTRP) issuance EE2 and LTRP HDFC Life: For internal training purpose only, not for solicitation. Benefits of Employer Employee Schemes To Employer To Employee  Can be used to retain performing and deserving  Premiums are paid by the employer - The employees employee will feel valued  A customizable tool to reward performers and  Employer helps the chosen employee in wealth boost their efficiency and productivity accumulation for future goals  The welfare nature of the scheme will enhance the  Reward for an employee (in the form of maturity image of employer in the minds of employees, and other payouts) because policy shall be clients and other shareholders assigned in favour of the employee before the start of any policy benefits  Optimization of taxes**  Financial security for employee’s loved ones (in the form of death proceeds) in case of untimely death of the employee **As per prevailing Tax laws and subject to changes HDFC Life: For internal training purpose only, not for solicitation. How does Employer-Employee scheme 2 work? The employer The life to be Premium is buys an insurance insured is the paid by the policy under EE employee employer Post the lock in period, the ownership of the policy will changes to the Employee If employee passes Two likely situations: away within lock-in period Survival Death  Death Benefit is paid to the employer by HDFC Life The employee after deducting TDS. Such proceeds in the hands survives up to The employee of the employer will be taxable in the FY in which Retirement / full passes away the same is received term of the policy  The Employer can make an ex-gratia payment to the legal heir of the Employee as per the Such receipts are included declaration cum indemnity by the employer at the in salary income of the On survival, Death Benefit will be given time of the issuance of the policy employee and is taxable on the employee to legal heir. This amount account of change in tax receives the will be treated as income law from 1st April 2014 maturity proceeds from other sources and will The claim amount received by the (HDFC Life will deduct TDS) be taxed. HDFC Life will deceased employee’s legal heirs deduct TDS. will be exempt from tax under CBDT circular 573 HDFC Life: For internal training purpose only, not for solicitation. What is the Tax treatment at every stage of EE scheme 2 ? EMPLOYER EMPLOYEE At the time of premium payments: At the time of premium payments:  All the premiums paid should be allowed as deduction u/s 37(1) of In EE2, premiums paid by the employer will not be treated as perks for the Income-tax Act, 1961 the employee and hence no perquisite tax will be applicable Ownership of the policy changes post lock-in: Policy surrendered within lock-in period: Notional surrender value at the time of ownership change will be treated as income in lieu of salary for the employee and will be taxable Policy proceeds are paid back to the employer if policy is surrendered for some reasons within the lock-in period Survival / Maturity Benefits: Such policy proceeds will be treated as Business Income under  Such policy proceeds will be taxable in the hands of the employee section 28(vi) and will be liable to be taxed as income from other sources / profits in lieu of salary, for all types of savings plans Same treatment for ULIP and Traditional plans Death Benefit within lock-in period:  Employer can pass on the death benefit to the legal heir of the deceased employee Policy ownership changes to the employee post lock-in:  Such proceeds received by legal heir of the employee in service as It is employer’s liability to deduct tax at source u/s 192 of the income gratuitous payment (ex-gratia) from employer will be exempt from tax tax act on the notional surrender value of the policy in the hands of legal heirs – CBDT Circular 573 Death Benefit post lock-in/assignment:  HDFC Life will deduct TDS and directly pay to the legal heir/nominee.  Such proceeds will be subject to tax in the hands of the legal heirs as income from other source HDFC Life: For internal training purpose only, not for solicitation. How does Long Term Reward Program (LTRP) for Employee work? The employee The life to be Premium is buys an insurance insured is the paid by the policy under LTRP employee employer Post the lock-in period, the policy will be Re-assigned to the employee If employee Two likely situations: passes away within lock-in period Survival Death The employee Legal heir will be tagged in HLI survives up to The employee system; Death claim will be Retirement / full passes away directly given to the legal heir of term of the policy the employee. This amount will be treated as income from other sources and will be taxed in the Such receipts are included hands of the legal heir/nominee in salary income of the On survival, (HDFC Life will deduct TDS ) employee and is taxable on the employee account of change in tax receives the law from 1st April 2014 maturity proceeds (HDFC Life will deduct TDS) HDFC Life: For internal training purpose only, not for solicitation. What is the Tax treatment at every stage of LTRP ? EMPLOYER Same treatment as mentioned under EE2 EMPLOYEE Fully taxable scheme At the time of the First Premium Payment  1st Premium paid by the employer on behalf of the employee will be treated as perquisite and the employee will have to pay perquisite tax.  Subsequent premiums paid by the employer after assignment of the policy shall not be taxable as perquisite in the hands of the employee. Policy Re-assigned to the employee post lock-in: Notional surrender value at the time of assignment will be treated as income in lieu of salary for the employee and will be taxable. Survival / Maturity Benefits:  Such policy proceeds will be taxable in the hands of the employee as income from other sources / profits in lieu of salary, for all types of savings plans Vesting Benefits in a Pension Plan:  Commutation up to 60% of the corpus by the employee shall be exempt under sec 10(10A)(iii).  Annuity payouts will be taxable. Currently there are no TDS implications for the Indian tax residents from annuity payout hence there is no obligation for HDFC Life to deduct TDS. Death Benefit:  Death proceeds will be paid directly to the nominee / legal heir of the employee by HDFC Life under all circumstances  Such proceeds received by legal heir of the employee in service or otherwise will be treated as income from other sources and will be taxable HDFC Life: For internal training purpose only, not for solicitation. What types of Products are offered under Employer and Employee schemes ?  FU (Full underwriting) products are considered and LU / DOGH products are not considered  Health and Group products are not allowed  Immediate income options are not allowed  Joint Life products are not allowed  Children Plan are not allowed  Online only products are not allowed  All Savings / ULIP / Protection products are allowed which are not falling in above mentioned categories.  All Single Premiums are allowed and any multiple of Sum Assured is allowed (As per applicability) HDFC Life: For internal training purpose only, not for solicitation. What Products are offered under LTRP and EE2 ? Sanchay Plus Sanchay Par Advantage (Deferred Income Option) Sanchay FMP (Single Life) Click 2 Achieve (Deferred Income Option) Sampoorna Nivesh Guaranteed Income Insurance Plan Smart Woman Assured Gain Plus Classic / Premier / Elite Traditional Income Advantage ULIP Pro Growth Flexi Saving Saving Sampoorna Jeevan (Deferred Income Option) Pro Growth Plus Plans Plans Guaranteed Wealth Plus Pro Growth Super II Saral Jeevan Crest (Free Asset Allocation) Smart Income Classic One (Single Life) Uday Smart Protect Plan Sampoorn Samridhi Plus Classic Assure Plus Super Income Plan Click 2 Protect Super Protect Plus Rider Protection Click 2 Protect Elite Riders (Accidental Death variant) Plans Sanchay Legacy Term Rider Saral Jeevan Bima HDFC Life: For internal training purpose only, not for solicitation. Pension & Deferred Annuity Products are open for LTRP Scheme. Note the Key Propositions and the Products! For Employer For Employee For Sales Person  Tax savings for the company  Creation of retirement income  Product credits equal to savings through company funds products  Retirement benefits for the Employees  Wealth accumulation for future  Customer satisfaction goals  Quick conversion due to no  Tax free return up to 60% of the underwriting and 24hrs issuance commutable corpus will be available u/s 10(10A)(iii) Personal Pension Plus Systematic Pension Plan Pension Deferred Pension Guaranteed Plan Assured Pension Plan (ULIP Pension) Plans Annuity Systematic Retirement Plan Smart Pension Plan (ULIP Pension) Plans Smart Pension Plus Guaranteed Pension Plan HDFC Life: For internal training purpose only, not for solicitation. Important points on Lock-in period Defining of the lock-in period by the employer is mandatory for both the schemes of EE Lock-in In case of products like, Sanchay Plus, Sanchay Par Period Advantage and Click 2 Achieve end date of the lock-in period need to be prior to the 1st pay-out date (survival benefit) For example, Immediate Income plans like Early Income variant of Click 2 Achieve etc where pay out starts immediately after payment of first premiums will not be feasible for EE Schemes with lock-in periods In case of Pension plans, the end date of the Lock-in period need to be prior to the vesting date In case of deferred annuity plans, the Lock-in period needs to be less than the deferment period HDFC Life: For internal training purpose only, not for solicitation. Eligibility Criteria of Employer Employee Scheme Can be given to the directors of public / private limited / limited companies Open to employees only with valid income proof working in companies, partnership, proprietorship, registered trust and not to owners, partners, trustees or share holders If the employee is the proprietor who is applying for EE, financial credentials of both the company and proprietor will be required The company should be profitable and should also be able to justify the total premium payment across all employees. Cannot be given to a company that has not made profits for 3 consecutive years or the profits and turnover are on decline However there can be exceptions which can be reviewed on a case to case basis like a start up company that is yet to make profits but with a genuine intention to pass on the insurance cover as an employee benefit HDFC Life: For internal training purpose only, not for solicitation. Calculation of Sum Assured Under Employer Employee Scheme The maximum sum assured under employer employee insurance is based on: Financial viability similar to individual viability For an employee with a stake in the firm, percentage of share-holding profit will be added to his / her individual viability HDFC Life: For internal training purpose only, not for solicitation. Illustrative examples of LTRP and EE scheme 2 HDFC Life: For internal training purpose only, not for solicitation.  Example 1 LTRP with Systematic Pension Plan as an Option (1/2) Pension can be sourced under LTRP wherein the Employer purchases a pension plan for the employee. Employer: Payor Employee: Life Assured Mr. Surya, 40, is the Chief of Operations of software firm Great Tech. He has been with the firm for the past 15 years. The firm wants to give him HDFC Life Systematic Pension Plan under LTRP. Sum Assured: Rs. 1 crore; Annual Premium: Rs. 10L; PPT: 10 years: Lock-in period: 10 years Particulars Amount in INR Annual premium paid by the employer 10,00,000 Total premiums paid in 10 years by the employer (A) 1,00,00,000 Tax @ 27.82% optimised by the employer u/s 37(1) every year 2,78,200 Tax @ 27.82% optimised by the employer u/s 37(1) in 10 years (B) 27,82,000 Investment by company (less tax optimised under u/s (37)1 (A – B) 72,18,000 Note: The above is an illustrated example without GST, as per prevailing tax laws and may be subject to changes. Tax under sec 115BA @ 27.82% = Corporate tax rate @ 25%+ Surcharge @ 7% on income-tax + 4% cess on income-tax Perquisite tax will be applicable only on the 1st premium amount for the employee HDFC Life: For internal training purpose only, not for solicitation.  Example 1 LTRP with Systematic Pension Plan as an Option (2/2) Employer’s Investment Premium Paid (10L x 10): 1 Cr – 27.82L (tax optimized) Rs. 72,18,000 Perquisite tax will be applicable on the 1st premium amount for the employee Mr. Surya On 10th year Notional Surrender Value: 1.24 cr. Policy is re-assigned after the end of lock-in period Tax to be paid by the Employee : ~ Rs. 37 L* (Optional at this stage)  On 20th policy year, that is on the vesting year, Mr. Surya will have an option to withdraw up to 60% of the total vesting benefit, i.e., Rs.1,66,67,250 tax free by availing sec 10(10A) benefit. 12499470  From 21st year onwards, Mr. Surya will get an annuity income from the remaining 40% of the corpus. This income will be taxable as per the prevailing individual income tax rate Within lock-in period 1 4 Death Benefit is paid to the legal heir of On Death the employee and will be Taxable Post Re-assignment *Tax paid by the employee is calculated at approx HDFC Life: For internal training purpose only, not for solicitation. individual income tax rate slab  Example 2 LTRP with Sanchay Plus Long Term Income as an Option (1/2) Employer: Payor Employee: Life Assured Mr. Amit, age 40 yrs is a top executive of an upcoming business firm. He has been with the firm for the past 12 years. The firm wants to reward him with HDFC Life Sanchay Plus plan with Long term Income option under LTRP Annual Premium: Rs.50 Lacs; PPT: 10 years; Payout Term: 30 years; Deferment period: 2 years; Lock-in period as specified by the employer: 12 years. Particulars Amount in INR Annual premium paid by the employer 50,00,000 Total premiums paid in 10 years by the employer (A) 5,00,00,000 *Tax @ 27.82% optimised by the employer u/s 37(1) every year 13,91,000 *Tax @ 27.82% saved by the employer u/s 37(1) in 10 years (B) 1,39,10,000 Investment by company (less tax saved under u/s (37)1 (A – B) 3,60,90,000 Note: The above is an illustrated example without GST, as per prevailing tax laws and may be subject to changes. Tax under sec 115BA @ 27.82% = Corporate tax rate @ 25%+ Surcharge @ 7% on income-tax + 4% cess Perquisite tax will be applicable only on the 1st premium amount for the employee HDFC Life: For internal training purpose only, not for solicitation.  Example 2 LTRP with Sanchay Plus Long Term Income as an Option (2/2) 1St Payout will be given out from the end of Rs. 55,37,500 13th policy year after two years of deferment  At this stage the notional surrender value may be At the start of 13th year, added as income in the hands of the employee for that policy is Re-assigned to particular year and taxed accordingly the employee after the  Employee can pay the tax on notional surrender value lock-in period and can set this off with the final value or he can pay tax on entire proceeds at the time of realization  Payouts of Rs.55,37,500 will be paid to the Employee every year for 30 years  Payouts will be taxable in the hands of the employee as per individual income tax rate  There is a high probability of getting ~ 6% post tax IRR in this illustrative example Policy within lock-in Death Benefit is paid to the legal heir of On Death the employee and it will be taxable in the hands of the legal heir Policy Re-assigned HDFC Life: For internal training purpose only, not for solicitation.  Example 3 LTRP with Systematic Retirement Plan as an Option (1/2) Employer: Payor Employee: Annuitant Mr. Mayank Shah, age 45 yrs is a top executive of an upcoming business firm. He has been with the firm for the past 10 years. The firm wants to reward him with HDFC Life SRP plan under Long Term Reward Program for employee. Annual Premium: Rs.15 Lacs; PPT: 5 years; Deferment period: 15 years; Plan Option: Life Annuity with return of purchase price i.e., premiums paid; Lock-in period as specified by the employer at inception: 6 years Particulars Amount in INR Annual premium paid by the employer 15,00,000 Total premiums paid in 5 years by the employer (A) 75,00,000 *Tax @ 27.82% optimised by the employer u/s 37(1) every year 4,17,300 *Tax @ 27.82% saved by the employer u/s 37(1) in 10 years (B) 20,86,500 Investment by company (less tax saved under u/s (37)1 (A – B) 54,13,500 Note: The above is an illustrated example without GST, as per prevailing tax laws and may be subject to changes. Tax under sec 115BA @ 27.82% = Corporate tax rate @ 25%+ Surcharge @ 7% on income-tax + 4% cess on income-tax Perquisite tax will be applicable only on the 1st premium amount for the employee HDFC Life: For internal training purpose only, not for solicitation.  Example 3 LTRP with Systematic Retirement Plan as an Option (2/2) Employer’s Investment Premium Paid (15L x 5): 75L – 20.87 L (tax optimized) Rs. 54,13,500 Perquisite tax will be applicable only on the 1st premium amount for the employee On 7th year Notional Surrender Value: Rs. 35,88,518 Policy is re-assigned after Tax payable by the Mr. Shah : ~ Rs. 11 Lac* the end of lock-in period He can pay the tax on notional surrender value and set this off later on the proceeds at the time of realization  Survival benefits in the form of Annuity will be paid to the Annuitant (the employee Mr. Shah) after the end of the deferment period of 15 years  Annuity will be taxable in the hands of the annuitant (employee) as per individual income tax rate  Please note, policy should be re-assigned back to the employee before the start of annuity payouts. This is the reason, the lock in period defined by employer should always be less than the chosen deferment period of the plan Policy within lock-in Death Benefit is paid to the legal heir of On Death the employee and it will be taxable Policy Re-assigned *Tax paid by the employee is calculated at approx HDFC Life: For internal training purpose only, not for solicitation. individual income tax rate slab  Example 4 EE2 with Sanchay Fixed Maturity Plan as an Option (1/2) Savings plan can be sourced under this scheme, wherein Employer purchases a savings plan for the employee. Employer: Payor Employee: Life Assured Ms. Alia, 45, is a senior executive with Spic Laboratories. She has been with the lab for the past 20 years. Her organisation wants to gift her HDFC Life Sanchay Fixed Maturity Plan for her long service. Sum Assured: Rs. 34.50L; Annual Premium: Rs. 5L; PPT: 5 years; Lock-in period: 5 years Particulars Amount in INR Annual premium paid by the employer 5,00,000 Total premiums paid in 5 years by the employer (A) 25,00,000 Tax @ 27.82 % optimised by the employer u/s 37(1) every year 1,39,100 Tax @ 27.82 % optimised by the employer u/s 37(1) in 5 years (B) 6,95,500 Investment by company (less tax optimised under u/s (37)1 (A – B) 18,04,500 Note: The above is an illustrated example without GST, as per prevailing tax laws and may be subject to changes. Tax under sec 115BA @ 27.82% = Corporate tax rate @ 25%+ Surcharge @ 7% on income-tax + 4% cess on income-tax Perquisite tax will NOT be applicable only on the premium amount for the employee HDFC Life: For internal training purpose only, not for solicitation.  Example 4 EE2 with Sanchay Fixed Maturity Plan as an Option (2/2) Employer’s Investment Rs. 18,04,500 Assigned to the employee Notional Surrender Value is 19.76L on the 5th policy year Tax due at this stage for the employee is Rs. 6.16 L post lock-in Can defer tax payment till maturity Rs. 47.88 lakhs will be paid to the employee and it will be taxable. On Maturity Net tax payable will be adjusted with the tax amount if paid at the time of assignment 1976548 If under exceptional  Maturity Benefit of Rs. 47.88 lakhs will be paid to the Employer post circumstances policy is deducting TDS not assigned till maturity  It will be considered as Business Income and will be taxable Rs. 50L is paid to the employer and it is passed on to the legal heir of the employee Policy not Assigned Such proceeds received as gratuitous payment (ex- gratia) from employer will be exempt from tax in the hands of legal heirs – CBDT Circular 573 On Death Policy Assigned Rs. 50L is paid to the legal heir of the employee and will be taxable as income from other sources *Tax paid by the employee is calculated at approx individual income tax rate. HDFC Life: For internal training purpose only, not for solicitation.  Example 5 Power pitch for EE2: Take care of your employees and they will take care of your business Mrs. Chandana Seth runs a Interior designing company. She has employed 15 employees. She bought two products under the Employer Employee scheme 2 (EE2) for her employees. The products are C2P Life and Sanchay Plus. One day her site manager dies due to heart attack. We settled the claim in record time For all of her employees, and the total premium amount was she pays a total premium of reduced for Mrs. Chandana Seth 20 lacs annually and saves the owner of the firm tax of 6.60 lacs annually Death Proceed of 1cr. was given to the legal heir / widow of her This event boosted the morale manager by HDFC Life. of the employees & trust for the employer Mrs. Seth.... Mrs. Seth Interior designing firm made a big profit in that The site manager earning 7 lacs and financial year insured for 1 cr. dies due to heart attack at the age of 37 years only HDFC Life: For internal training purpose only, not for solicitation. Documentation in EE  Income Tax Returns (ITR) with Computation of Income (COI) / Form 16  Audited Profit and Loss Account and Balance Sheet  Board resolution  Covering letter from the firm giving names of employees to be covered  Undertaking from the employer  Declaration by the employee  Special conditions in prescribed format  Employer-Employee questionnaire  Form specifying lock-in period  Consent letter from the employee related to DB  Declaration cum indemnity from the employer related to passing on the death benefits to the legal heir of the deceased employee Conditions on Financials Required 1) ITR with computation of income of employer and employee* 2) Audited Accounts of employer along with audit report (if applicable)* 3) Proof of salary of employee - e.g. ITR with computation of income showing salary/Form 16/Bank Statement with salary credit/Salary slips/Form 26AS of the employee Note: Shareholding of the life assured should not exceed 5%. MD / COO approval will be required for cases above share holding of 5%. *Latest 3 years HDFC Life: For internal training purpose only, not for solicitation. Documentation in LTRP  Annexure A - Undertaking from the employer  Annexure B - Board resolution granting permission to apply for this plan  Annexure C - Declaration from the employee (life to be assured)  Annexure D - Details of employee covered in the scheme  Annexure E - Assignment and re-assignment form with complete attestation  Annexure F - Special conditions to be endorsed for assignment and re-assignment HDFC Life: For internal training purpose only, not for solicitation. Unedited views of our Tax Department on EE2 & LTRP Disclaimer: The customer should seek advice from his CA HDFC Life: For internal training purpose only, not for solicitation. or personal tax advisors w.r.t. the tax liabilities. Important Areas Employer Employee Scheme 2 (EE2) Long Term Reward Program (LTRP) of the Schemes Employer LTRP (Policy is taken by the employee on his life, immediately assigned to the Employee EE2 (Policy is taken by the employer and assigned to the employee post employer and post completion of lock in period reassigned back to the completion of lock in period) employee. The beneficiary is the nominee of the employee in case of death of Lock - In period the employee.) We understand that there would be an upfront ownership change Immediately upon issuance, the policy is assigned to the employer. Post Assignment declaration collected, which will come into effect post lock-in and so the completion of the lock-in period the policy is re-assigned to the employee by ownership changes post lock-in period the employer. a) The then surrender value received by the employer, if any, will be liable to On assignment to the employee, it is employer’s liability to deduct tax at tax in the hands of the employer source u/s 192 of the Income tax Act,1961, on the surrender value of the b) On assignment to the employee, it is employer’s liability to deduct tax at Tax on Assignment policy i.e. the employee will have to pay tax on the then surrender value source u/s 192 of the Income tax Act,1961, on the surrender value of the of the policy policy i.e. the employee will have to pay tax on the then surrender value of the policy. a) During pre assignment period, premiums paid by the employer should a) First premium paid by the employer on behalf of the employee is treated not be treated as perquisite. as perquisite in the hands of the employee. Perquisite Tax b) Premiums paid after assignment of the policy to the employee shall be b) Subsequent premiums paid by the employer after assignment of the policy taxable as perquisite u/s 17(2)(v) of the Income-tax Act, 1961, in the to the employer shall not be taxable as perquisite. hands of the employee All the Premiums paid by the employer before assignment – May be All the Premiums paid by the employer before assignment – May be allowed allowed as deduction u/s 37(1) of the Income-tax Act, 1961 subject to Section 37(1) as deduction u/s 37(1) of the Income-tax Act, 1961 subject to the conditions the conditions stated therein and subject to tax authorities allowing the stated therein and subject to tax authorities allowing the claim. claim. Tax implications for policies issued under EE2 will continue to remain the Tax implications for policies issued under LTRP will continue to remain the ULIP Capital Gain same from employer and employee perspective irrespective of whether same from employer and employee perspective irrespective of whether the Taxation the policy is a ULIP or a non ULIP policy is a ULIP or a non ULIP a) If proceeds are received by the legal heir/nominee on death of the employee it is taxable as "Income from other sources" in the hands of the legal heir/nominee of the deceased employee. b) If the proceeds are received by the employer on death of the Proceeds are received by the legal heir/nominee on death of the employee Death During Lock- employee, then it shall be taxable in the hands of the employer as and it is taxable as "Income from other sources" in the hands of the legal in Period business income. heir/nominee of the deceased employee. c) Any lump sum amount paid gratuitously/by way of compensation to the widow or legal heirs of employee, on death of the employee by his employer shall not be taxable as per the CBDT circular no. 573 dated August 21, 1990. HDFC Life: For internal training purpose only, not for solicitation. Important Areas of the Employer Employee Scheme 2 (EE2) Long Term Reward Program (LTRP) Schemes Yes, the Insurer shall deduct tax at source @5% (with effect from Yes, the Insurer shall deduct tax at source @5% (with effect from September 1, 2019) if PAN is provided by the policyholder, or @20% if September 1, 2019) if PAN is provided by the policyholder, or @20% if TDS Applicable on Death PAN is not provided by the policyholder or is provided and not linked PAN is not provided by the policyholder or is provided and not linked Benefit with Aadhaar. Tax deduction at source shall be @10% if PAN is with Aadhaar. Tax deduction at source shall be @10% if PAN is provided provided and its status is a “specified person” as per section 206AB of and its status is a “specified person” as per section 206AB of the the Income-tax Act, 1961. Income-tax Act, 1961. Surrender During Lock-in The Surrender value received by the employer, if any, will be liable to The Surrender value received by the employer, if any, will be liable to Period tax in the hands of the employer. tax in the hands of the employer. a) Proceeds received by the legal heir/nominee on death of the a) Proceeds received by the legal heir/nominee on death of the employee are taxable as "Income from other sources" in the hands employee are taxable as "Income from other sources" in the hands of the legal heir/nominee of the deceased employee. TDS shall of the legal heir/nominee of the deceased employee. TDS shall apply. apply. Death post Lock-in Period b) It is possible to take an argument that as tax has already been paid b) It is possible to take an argument that as tax has already been paid on the surrender value, only the incremental income (i.e. Amount on the surrender value, only the incremental income (i.e. Amount received on death Less Surrender value on which tax has been paid) received on death Less Surrender value on which tax has been paid) ought to be taxable. ought to be taxable. a) On maturity/surrender of the policy, will not get the section 10(10D) a) On maturity/surrender of the policy, will not get the section 10(10D) of the Income-tax Act, 1961 benefit on account of the change in law of the Income-tax Act, 1961 benefit on account of the change in law Surrender / Maturity Post on and from April 1, 2014. on and from April 1, 2014. Lockin Period b) Therefore after maturity/on surrender, the maturity/surrender b) Therefore after maturity/on surrender, the maturity/surrender proceeds shall be taxable. proceeds shall be taxable. As the maturity/surrender proceeds are taxable, it is possible to take an As the maturity/surrender proceeds are taxable, it is possible to take an Tax on Surrender / argument that as tax has already been paid on the surrender value, argument that as tax has already been paid on the surrender value, Maturity only the incremental income (i.e. Amount received on Maturity less only the incremental income (i.e. Amount received on Maturity less Surrender value on which tax has been paid) ought to be taxable. Surrender value on which tax has been paid) ought to be taxable. Yes. the Insurer shall deduct tax at source @5% (with effect from Yes. the Insurer shall deduct tax at source @5% (with effect from September 1, 2019) if PAN is provided by the policyholder, or @20% if September 1, 2019) if PAN is provided by the policyholder, or @20% if TDS Applicable on Maturity PAN is not provided by the policyholder or is provided and not linked PAN is not provided by the policyholder or is provided and not linked / Surrender/Survival with Aadhaar. Tax deduction at source shall be @10% if PAN is with Aadhaar. Tax deduction at source shall be @10% if PAN is provided Benefits provided and its status is a “specified person” as per section 206AB of and its status is a “specified person” as per section 206AB of the the Income-tax Act, 1961. Income-tax Act, 1961. HDFC Life: For internal training purpose only, not for solicitation.  Thank you! HDFC Life: For internal training purpose only, not for solicitation.