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CA Final · Direct Tax Laws & International Taxation · Miscellaneous Provisions

Himalaya General Insurance Ltd., a non-life insurer, has the following for the tax year in its fire insurance business (not engineering with terrorism risk): premium received Rs 800 lakh, reinsurance premium paid Rs 200 lakh. It carries Rs 380 lakh to the reserve for unexpired risks. Under Rule 330 of the Income-tax Rules, 2026, what is the maximum amount of reserve deductible?

The maximum deductible reserve is Rs 300 lakh. Net premium income is premium received less reinsurance premium, Rs 600 lakh, and ordinary fire insurance is capped at 50% of that, which is lower than the Rs 380 lakh actually carried over.

  1. ARs 300 lakhCorrect
  2. BRs 400 lakh
  3. CRs 380 lakh
  4. DRs 600 lakh

Explanation

Net premium income = 800 - 200 = Rs 600 lakh. For fire insurance not covered by clause (a), the cap is 50% of net premium income = Rs 300 lakh. The amount carried over, Rs 380 lakh, exceeds this, so the limit applies. Using 100% would give Rs 600 lakh, which is wrong for ordinary fire insurance.

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