CA Final · Direct Tax Laws & International Taxation · Miscellaneous Provisions
Vayu Insurance Ltd has three businesses in the tax year. Net premium income: fire insurance covering terrorism risks Rs 50 crore, miscellaneous insurance Rs 60 crore, and export credit insurance Rs 20 crore. Reserve for unexpired risks carried over is Rs 45 crore, Rs 36 crore and Rs 25 crore respectively. Applying Rule 330, what is the total reserve deduction allowed, treating each business separately?
The total deduction is Rs 95 crore. Fire insurance covering terrorism risks allows the full Rs 45 crore, miscellaneous insurance is capped at 50% of Rs 60 crore, which is Rs 30 crore, and export credit insurance, treated as marine insurance, is capped at Rs 20 crore.
- ARs 95 croreCorrect
- BRs 106 crore
- CRs 130 crore
- DRs 91 crore
Explanation
Fire with terrorism risks has a 100% cap of Rs 50 crore, and Rs 45 crore carried over is within it, so Rs 45 crore is allowed. Miscellaneous insurance has a 50% cap of Rs 30 crore against Rs 36 crore carried over, so Rs 30 crore is allowed. Export credit insurance is marine insurance with a 100% cap of Rs 20 crore against Rs 25 crore carried over, so Rs 20 crore is allowed. Total = 45 + 30 + 20 = Rs 95 crore. Allowing the full Rs 36 crore for miscellaneous insurance gives the Rs 101 crore error, and applying 100% everywhere gives Rs 106 crore.
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