Page 226 - India Insurance Report 2023- BIMTECH

214 India Insurance Report - Series II

Taxation of General Insurance Companies

- Bahroze Kamdin
25 Partner - Deloitte India

- Alifya Hakim
Director with Deloitte India

Introduction

Under the Income-tax Act (“the Act”), taxation of insurance companies is governed by the provisions
of section 44. The section starts with a non-obstante clause and provides that profits and gains of an entity
carrying on insurance business shall be computed in accordance with the Rules contained in the First Schedule
to the Act. This provision is applicable irrespective of the specific provisions under the Act relating to the
computation of income chargeable under the head “Interest on securities,” “Income from house property,”
“Capital gains,” or “Income from other sources,” or in section 199 or in sections 28 to 43B of the Act.

Rule 5 of the First Schedule to the Act provides the manner of computation of profits and gains of
insurance business other than life insurance business. As per the Rule, the starting point of the computation
is the profit before tax and appropriations as disclosed in the profit and loss account prepared in accordance
with the provisions of the Insurance Act, 1938 or the rules made thereunder or the provisions of the
Insurance Regulatory and Development Authority Act, 1999 or the regulations made thereunder.

1. Adjustments are Required to be Made to Arrive at the Profits and Gains:

Any expenditure or allowance, including any amount debited to the profit and loss account either by
way of a provision for any tax, dividend, reserve, or any other provision as may be prescribed which is
not admissible under the provisions of sections 30 to 43B in computing the profits and gains of a business,
shall be added back. However, it has been provided that the expenses disallowed in the hands of the
general insurance company under section 43B shall be allowed in the year of actual payment thereof.

a. Gain or loss on realization of investments to be offered to tax or claimed as a deduction, as the case may
be. If the gain/loss is already credited to the profit and loss account, no adjustment is required to be done.

b. No deduction to be allowed for provision for diminution in the value of investment debited to the
profit and loss account.

c. The amount carried over to a reserve for unexpired risk (URR), as prescribed per Rule 6E of the
Income-tax Rules, 1962 (“the Rules”), is to be allowed as a deduction.
As per Rule 6E, the deduction for URR shall be restricted to the following amounts calculated on
the net premium income of the respective business of the year: