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CMA Final · Direct Tax Laws and International Taxation · Business Restructuring

For a life insurance business under Schedule XIV of the Income-tax Act, 2025, which describes the profits and gains correctly?

Life insurance profits are computed separately from other businesses and equal the annual average of the surplus from the actuarial valuation for the last inter-valuation period ending before the tax year, adjusted to remove any surplus or deficit relating to earlier inter-valuation periods.

  1. AThe total surplus of the current year, computed together with other businesses
  2. BThe annual average of the surplus from the actuarial valuation for the last inter-valuation period ending before the tax year, adjusted to exclude earlier-period surplus or deficit, computed separatelyCorrect
  3. CProfit before tax per the profit and loss account, with reserve for unexpired risks allowed
  4. DThe proportion of global income by premium ratio in every case

Explanation

Paragraphs 1 and 2(1) require separate computation and define profits as the annual average of the adjusted actuarial surplus for the last inter-valuation period. The profit-and-loss account basis belongs to other insurance business under paragraph 4. The premium-ratio method applies only to non-residents lacking more reliable data.

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