Tax Book 2023

Insurance Business Chapter- 25

S. No.

Topic covered

(For CA Mod F & ICMAP students)

PART – I

1 Definition

2 Categories of insurance

3 Taxability of insurance business

4 Computation of the surplus

5 General insurance

6 Mutual insurance association

6E

7 Practical example

8 MCQ’s with solutions

Definition

Insurance is defined in the Insurance Ordinance 2000 in the following words:

“Insurance” means the business of entering into and carrying out policies or contracts, by whatever, name
called, whereby, in consideration of a premium received, a person promises to make payment to another
person contingent upon the happening of an event, specified in the contract, on the happening of which the
second name person suffers loss and includes reassurance and retrocession. Provided that a contract of
life insurance shall be deemed to be a contract of Insurance notwithstanding that it may not comply with the
definition set out in this clause.

Categories

The Insurance is divided into two broad categories i.e. Life and General Insurance, General Insurance
includes Fire, Accidental, Marine, medical Insurance etc. The reporting pattern of financial statements of
the Insurance Companies is different from normal Accounts. A life Insurance Business is required to
prepare 9 reports as a part of financial statements. Whereas General business related companies are
required to prepare 10 reports.

Taxability

Although normal rates of tax are applicable to Insurance companies, however, method for determination of
taxable income is different and section 99 deals with this issue in the following way:

Special provisions relating to insurance business: The profits and gains of any insurance business shall be
computed in accordance with the rules in the Fourth Schedule.

Rule 1 - 3 of the Fourth Schedule are applicable to Life Insurance Business. The said rules stipulate the
provisions regarding computation of profit and gains on the life Insurance business in the following manner:

The profits and gains of a taxpayer carrying on life insurance business chargeable under the head "Income
from Business” shall be computed separately from the taxpayer's income from other business.

The income from life insurance business is liable to tax under income from business and the said income
will be worked out in the manner laid down hereunder:

The profits and gains of a life insurance business shall be the current year’s surplus appropriated to profit
and loss account prepared under the Insurance Ordinance, 2000, as per advice of the Appointed Actuary,

25 Insurance business

Chapter