Skip to content

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

Surakshit General Insurance Co. carries on only fire insurance business that is not engineering insurance covering terrorism risks. In the tax year it received premiums of Rs 50 crore and paid reinsurance premium of Rs 10 crore. It carried Rs 25 crore to the reserve for unexpired risks. What is the maximum amount allowable as deduction for the reserve under Rule 330 of the Income-tax Rules, 2026?

The maximum deduction is Rs 20 crore. Net premium income is Rs 40 crore after deducting reinsurance premium, and ordinary fire insurance is capped at 50% of net premium income under Rule 330, so the excess of the Rs 25 crore carried is disallowed.

  1. ARs 25 crore
  2. BRs 20 croreCorrect
  3. CRs 40 crore
  4. DRs 50 crore

Explanation

Net premium income is premium received less reinsurance premium paid: 50 - 10 = Rs 40 crore. Plain fire insurance falls under clause (b), with a limit of 50% of net premium income, which is Rs 20 crore. Rs 25 crore carried is more than this, so only Rs 20 crore is allowed. Using gross premium would wrongly give Rs 25 crore.

Did you get it right without looking?

One question tells you little. A timed set on Miscellaneous Provisions shows your real accuracy, how long you take and where you lose marks.

Practise Miscellaneous ProvisionsFree diagnostic mock

More Miscellaneous Provisions questions