CA Final · Direct Tax Laws & International Taxation · Miscellaneous Provisions
A general insurer carries on only fire insurance business that does not cover terrorism risks. In the tax year it received premiums of Rs 12 crore and paid reinsurance premium of Rs 2 crore. It carried Rs 6 crore to the reserve for unexpired risks, including any additional reserve. Under Rule 330 of the Income-tax Rules, 2026, what is the maximum deductible amount?
The maximum deduction is Rs 5 crore. Fire insurance without terrorism cover is limited to fifty per cent of net premium income, and net premium is premium received less reinsurance premium paid, namely Rs 10 crore. Half of that is Rs 5 crore, below the Rs 6 crore carried.
- ARs 5 croreCorrect
- BRs 6 crore
- CRs 10 crore
- DRs 4 crore
Explanation
Fire insurance not covered by clause (a) falls under clause (b), limited to 50% of net premium income. Net premium is Rs 12 crore less Rs 2 crore, which is Rs 10 crore, so the cap is Rs 5 crore. Rs 6 crore is 50% of gross premium, which is the wrong base. The carried amount of Rs 6 crore exceeds the cap.
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