CA Final · Direct Tax Laws & International Taxation · Miscellaneous Provisions
Himalaya Engineering Insurance Ltd has two lines of business in the tax year. (i) Engineering insurance covering terrorism risks: premium received Rs 12 crore, reinsurance paid Rs 2 crore, reserve carried over Rs 13 crore. (ii) Miscellaneous insurance not covered by clause (a): premium received Rs 18 crore, reinsurance paid Rs 4 crore, reserve carried over Rs 9 crore. Considering rule 330 for each business, what is the total reserve allowed as a deduction and the total disallowed?
Total allowed is Rs 17 crore and total disallowed is Rs 5 crore. Terrorism-covering engineering insurance gets a 100% limit on net premium of Rs 10 crore, so Rs 10 crore is allowed. Miscellaneous insurance gets 50% of Rs 14 crore, so Rs 7 crore is allowed.
- AAllowed Rs 17 crore; disallowed Rs 5 croreCorrect
- BAllowed Rs 22 crore; disallowed nil
- CAllowed Rs 16 crore; disallowed Rs 6 crore
- DAllowed Rs 15 crore; disallowed Rs 7 crore
Explanation
For (i), net premium = 12 - 2 = Rs 10 crore and the limit is 100%, so allowed is Rs 10 crore and Rs 3 crore is disallowed. For (ii), net premium = 18 - 4 = Rs 14 crore and the limit is 50%, so the limit is Rs 7 crore; the reserve is Rs 9 crore, so Rs 7 crore is allowed and Rs 2 crore disallowed. Total allowed is 10 + 7 = Rs 17 crore and disallowed is 3 + 2 = Rs 5 crore. Rs 22 crore ignores the limits altogether.
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