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

Nirmaan Marine Assurance Ltd. conducts only marine insurance business, including export credit insurance, for the tax year. Premium received was Rs. 600 lakh, of which Rs. 150 lakh relates to export credit insurance, and reinsurance premium paid was Rs. 100 lakh in total. It carried Rs. 520 lakh to the reserve for unexpired risks. Under the Income-tax Rules, 2026, what amount of the reserve is disallowed in this year, and what is its treatment in the next tax year?

Rs. 20 lakh is disallowed and it is not taxed again next year. Marine insurance, including export credit insurance, is capped at 100% of net premium income, which is Rs. 500 lakh after reinsurance. The excess of Rs. 20 lakh is excluded from next year's total income when credited to the revenue account.

  1. ARs. 20 lakh disallowed; it is not included in total income of the next tax year in the revenue account in which it was creditedCorrect
  2. BRs. 20 lakh disallowed; it is taxable again in the next tax year
  3. CNil disallowed, since the limit is Rs. 600 lakh
  4. DRs. 220 lakh disallowed; it is not included in the next tax year income

Explanation

Marine insurance includes export credit insurance, so the whole business is within the 100% limit. Net premium income = 600 - 100 = Rs. 500 lakh. The excess is 520 - 500 = Rs. 20 lakh, disallowed. Under Rule 330(2), the disallowed amount is not included in total income of the immediately succeeding tax year when credited in the revenue account. The 600 lakh option wrongly ignores reinsurance premium.

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