THE FIRST SCHEDULE

INSURANCE BUSINESS

(See section 44)

A—Life Insurance business

Profits of life Insurance business to be computed separately

1. In the case of a person who carries on or at any time in the previous year carried on life insurance business, the profits and gains of such person from that business, shall be computed separately from his profits and gains from any other business.

Computation of profits of life insurance business

2. (1) The profits and gains of life insurance business shall be taken to be the greater of the following—

(a) the gross external incomings of the previous year from that business, less the management expenses of that year ;

(b) the annual average of the surplus arrived at by adjusting the surplus or deficit disclosed by the actuarial valuation made in accordance with the Insurance Act, 1938, in respect of the last inter-valuation period ending before the commencement of the assessment year, so as to exclude from it any surplus or deficit included therein which was made in any earlier inter-valuation period and any expenditure or allowance which is not deductible under the provisions of ¹[Sections 30 to 43A] in computing income chargeable under the head "Profits and gains of business or profession."

(2) The amount to be allowed as management expenses under sub-rule (1) shall not exceed the aggregate of the following :—

(a) 7½ per cent of the premiums received during the previous year in respect of single premium life insurance policies ;

(b) in respect of the first year's premiums received in respect of other life insurance policies for which the number of annual premiums payable is less than twelve, or for which the number of years during which premiums are payable is less than twelve, for each such premium or each such year 7½ per cent of such first year's premiums received during the previous year ;

(c) 90 per cent of the first year's premiums received during the previous year in respect of all other life insurance policies ;

(d) in respect of all renewal premiums received during the previous year, an amount calculated at such percentage thereof as is permissible under sub-section (2) of section 40B of the Insurance Act, 1938, as reduced by any expenditure or allowance which is not deductible under ¹[Sections 30 to 43A] in computing income chargeable under the head "Profits and gains of business or profession."

Deductions

3. In computing the surplus for the purpose of Rule 2—

(a) four-fifths of the amounts paid to or reserved for or expended on behalf of policy-holders shall be allowed as a deduction :

Provided that if any amount so reserved for policy-holders ceases to be so reserved, and is not paid to or expended on behalf of policyholders, that proportion of such amount (one-half or four-fifths, as the case may be) if it has been previously allowed as a deduction under this Act or under the Indian Income-tax Act, 1922, shall be treated as part of the surplus for the period in which the said amount ceased to be so reserved :

(b) any amount either written off or reserved in the accounts or through the actuarial valuation balance-sheet to meet depreciation of or loss on the realisation of investments shall be allowed as a deduction, and any sums taken credit for in the accounts or actuarial valuation balance-sheet on account of appreciation of or gains on the realisation of investments shall be included in the surplus :

Provided that if upon investigation it appears to the Income-tax Officer after consultation with the Controller of Insurance that having due regard to the necessity for making reasonable provision for bonuses to participating policy-holders and for contingencies, the rate of interest or other factors employed in determining the liability in respect of outstanding policies is materially inconsistent with the valuation investments so as artificially to reduce the surplus, such adjustment shall be made to the allowance for depreciation or to the amount to be included in the surplus in respect of appreciation of such investments as shall increase the surplus for the purpose of these provisions to a figure which is fair and just ;

(c) interest received during the inter-valuation period in respect of any securities of the Central Government which have been issued or declared to be income-tax free, shall not be excluded, ²[but the assessee shall be entitled to a deduction from the amount of income-tax with which he is chargeable on his total income, of an amount calculated at the rate of ¹[twenty-seven and half] per cent on the annual average of the amount of such interest].

Adjustment of tax paid by deduction at source

4. Where for any year an assessment of the profits of life insurance business is made in accordance with the annual average of a surplus disclosed by a valuation for an inter-valuation period exceeding twelve months, then, in computing the income-tax payable for that year, credit shall not be given in accordance with section 199 for the income-tax paid in the previous year, but credit shall be given for the annual average of the income-tax paid by deduction at source from interest on securities or otherwise during such period.

B—Other insurance business

Computation of profits and gains of other insurance business

5. The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938, to be furnished to the Controller of Insurance, subject to the following adjustments:—

(a) subject to the other provisions of this rule, any expenditure or allowance which is not admissible under the provisions of ²[sections 30 to 43A] in computing the profits and gains of a business shall be added back ;

(b) any amount either written off or reserved in the accounts to meet depreciation of or loss on the realisation of investments shall be allowed as a deduction, and any sums taken credit for in the accounts on account of appreciation of or gains on the realisation of investments shall be treated as part of the profits and gains :

Provided that the Income-tax Officer is satisfied about the reasonableness of the amount written off or received in the accounts, as the case may be, to meet depreciation of or loss on the realisation of investments ;

(c) such amount carried over to a reserve for unexpired risks as may be prescribed in this behalf shall be allowed as a deduction.

C—Other Provisions

Profits and gains of non-resident persons

6. (1) The profits and gains of the branches in India of a person not resident in India and carrying on any business of insurance, may, in the absence of more reliable data, be deemed to be that proportion of the world income of such person which corresponds to the proportion which his premium income derived from India bears to his total premium income.

(2) For the purposes of this rule, world income in relation to life insurance business of a person not resident in India shall be computed in the manner laid down in this Act for the computation of the profits and gains of life insurance business carried on in India.

Interpretation

7. (1) For the purposes of these rules—

(i) `'gross external incomings" means the full amount of incomings from interest, dividends, fines and fees and all other incomings from whatever source derived (except premiums received from policy-holders and interest and dividends on any annuity fund), and includes also profits from reversions and on the sale or the granting of annuities, but excludes profits on the realisation of investments :

Provided that incomings, including the annual value of the property occupied by the assessee, which but for the provisions of section 44 would have been assessable under the head "Income from house property", shall be computed in the manner applicable to income chargeable under that head, and that there shall be allowed from such gross incomings such deductions as are permissible in respect of income chargeable under that head;

(ii) "investments" includes securities, stocks and shares ;

(iii) "management expenses" means the full amount of expenses (including commissions) incurred exclusively in the management of the business of life insurance, and in the case of a company carrying on other classes of business as well as the business of life insurance, in addition thereto a fair proportion of the expense incurred in the general management of the whole business. Bonuses or other sums paid to or reserved on behalf of policy-holders, depreciation of, and losses on the realisation of investments, and any expenditure or allowance other than expenditure or allowance which may under the provisions of ¹[sections 30 to 43A] be allowed for in computing the profits and gains of a business, are not management expenses for the purposes of these rules ;

(iv) "life insurance business" means life insurance business as defined in clause (11) of section 2 of the Insurance Act, 1938 ;

(v) "rule" means a rule contained in this Schedule.

(2) References in these rules to the Insurance Act, 1938, or any provisions thereof, shall in relation to the Life Insurance Corporation of India, be construed as references to that Act or provision as read with section 43 of the Life Insurance Corporation Act, 1956.

 

 

[As amended by Finance Act, 1967]