Report No. 12
C-Transitional provisions and repeal
The First Schedule
Insurance Business
(See section 44)
A. Life insurance business.
1. Profits of life insurance business to be computed separately.-
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.
[Sch., Rule 1]
2. Computation of profits of life insurance business.-
(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 (4 of 1938), in respect of the last intervaluation period ending before the commencement of the assessment year, so as to exclude from it any surplus of deficit included therein which was made in any earlier inter-valuation period and any expenditure which is not deductible under the provisions of sections 30 to 40 [sections regarding deductions for business] in computing income chargeable under the head "Profits and gains of business, profession of vocation"
(2) The amount to be allowed as management expenses under sub-rule (1) shall not exceed the aggregate of the following-
(a) 71/2 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 71/2 per cent. of such first year's premiums received during the previous year;
(c) 90 per cent. of the first years 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 (4 of 1938), as reduced by any expenditure which is not deductible under sections 30 to 40 [sections regarding business deduction] in computing income chargeable under the head "Profits and gains of business, profession or vocation".
[Sch., rule 2]
3. Deductions.-
In computing the surplus for the purpose of rule 2, [Schedule, rule 2]-
(a) four-fifths of the amounts paid to or reserved for or expended on behalf of policyholders 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 policy-holder 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 (11 of 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 policyholders and for contingencies, the rate of interest or other factor employed in determining the liability in respect of outstanding policies is materially inconsistent with the valuation of 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 purposes of these provisions to a figure which is fair and just;
(c)(i) 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, but
(ii) no income-tax shall be payable on the annual average of the amount of such interest
[Sch., rule 3]
4. Adjustment of tax paid by deduction at source.-
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 intervaluation period exceeding twelve months, then, in computing the income-tax payable for that year, credit shall not be given in accordance with section 207 [section 18(5), main para, part regarding credit for tax deducted at source] 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.
[Sch., rule 4]
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