Budget 2010: Taxation of income of non-life insurance business

Feb 28, 2010

Section 44 read with the First Schedule to the
Income-tax Act provides the scheme of computation
 of income of insurance companies. 

According to Rule 5 of the said Schedule, the income of non-life
insurance business is taken as ‘profit before tax and
appropriations’ as per the profit and loss account of
the company, prepared in accordance with the regulations
 made by the Insurance Regulatory Development Authority (IRDA),
 subject to certain adjustments.

The Finance (No. 2) Act, 2009 amended the
First Schedule to provide that in case of non-life
insurance business, appreciation of or gains on realisation
of investments taken credit for in the accounts shall be treated
as income and be included in the computation of the total income.

The appreciation in the value of investments, being in the nature
of unrealized gain is not taken into account for determining profit
 or loss of non-life insurance business as per the IRDA regulations.


 It is, therefore, proposed that the unrealized gains due to appreciation
 in the value of investments will not be included in the total income.


 Similarly, deduction will not be allowed for provision for losses
 due to diminution in the value of investments as this is not a realized loss.

It has also been provided that any gain or loss on realisation of
 investments shall be added or deducted for the purpose of
computation of the total income, if the same is not already
 credited or debited in the profit and loss account.

This amendment is proposed to take effect from 1st April, 2011
 and will, accordingly, apply in relation to the assessment
year 2011-12 and subsequent years.