CA Final · Direct Tax Laws & International Taxation · Miscellaneous Provisions
Himalaya Engineering Insurance Ltd. carries on engineering insurance business that covers terrorism risks. In the tax year, it received premium of Rs 20 crore and paid reinsurance premium of Rs 4 crore. It carried Rs 14 crore to the reserve for unexpired risks, including an additional reserve eligible under Schedule XIV. What deduction is allowable under Rule 330?
Rs 14 crore is allowable. Engineering insurance covering terrorism risks has a limit of 100% of net premium income, which is Rs 16 crore after reinsurance. The Rs 14 crore carried is within that limit, so the whole amount is deductible.
- ARs 8 crore
- BRs 10 crore
- CRs 14 croreCorrect
- DRs 16 crore
Explanation
Engineering insurance covering terrorism risks falls under clause (a), limit 100% of net premium income. Net premium is 20 - 4 = Rs 16 crore, so the limit is Rs 16 crore. The amount carried, Rs 14 crore, is within the limit and is fully allowable. Applying the 50% limit would wrongly give Rs 8 crore.
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