Rule 330: Reserve for unexpired insurance risks
Rule 330 limits the unexpired-risk reserve deductible when computing profits of insurance businesses other than life insurance. The cap is 100% or 50% of net premium income, depending on the business category, and the rule addresses the next-year treatment of a disallowed reserve amount.
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Rule 330 - Limits of reserve for unexpired risks
(1) In the computation of profits and gains for any insurance business other than life insurance, the amount carried over to a reserve for unexpired risks, including any amount carried over to any such additional reserve eligible for deduction under paragraph 4(1)(d) of Schedule XIV to the Act, shall not exceed,— (a) where the insurance business relates to fire insurance or engineering insurance that covers terrorism risks, 100% of the net premium income of such business of the tax year; or (b) where the insurance business relates to fire insurance or miscellaneous insurance, other than those mentioned in clause (a), 50% of the net premium income of such business of the tax year; or (c) where the insurance business relates to marine insurance, 100% of the net premium income of such business of the tax year.
(2) Any amount out of the amount carried over to such reserve or additional reserve, which is not allowed as a deduction under this rule in respect of any tax year, shall not be included in the total income for the immediately succeeding tax year in the revenue account relating to which the said amount is credited.
(3) In this rule,— (a) "marine insurance" includes the Export Credit Insurance; and (b) "net premium income" refers to the premium amount received as reduced by the reinsurance premium paid during the relevant tax year.
Introduction
The reserve computation sits within the non-life insurance provisions of Schedule XIV. Separate the insurance category, the defined premium base and the treatment of any tax disallowance before finalising the computation.
Rule breakdown
Identify the correct insurance category
Classify the insurance business before applying a percentage. Clause (a) concerns fire or engineering insurance covering terrorism risks. Clause (b) covers fire or miscellaneous insurance other than that clause (a) category. Clause (c) covers marine insurance, which expressly includes Export Credit Insurance.
Calculate the reserve limit
Start with the defined net premium income and apply the relevant cap to the reserve carried over, including the specified additional reserve. A maximum does not itself justify a deduction greater than the amount actually falling within the reserve provision.
Track a disallowed reserve into the next tax year
If part of the reserve or additional reserve is not allowed as a deduction in one tax year, sub-rule (2) says it is not included in total income for the immediately succeeding tax year in whose revenue account that amount is credited. Keep the tax disallowance reconciliation so the same amount is identified.
Illustrative limit calculation
Assume the relevant category has ₹100 lakh premium received and ₹20 lakh reinsurance premium paid during the tax year. Defined net premium income is ₹80 lakh. A 50% category has a ₹40 lakh cap; a 100% category has an ₹80 lakh cap. These figures illustrate the cap only, subject to the actual reserve and applicable Schedule XIV computation.
Key takeaways
Non-life insurance scope
The rule applies to insurance business other than life insurance and the reserve deduction referred to in Schedule XIV.
Category-specific caps
The terrorism-risk fire/engineering category and marine insurance have a 100% cap; the other stated fire/miscellaneous category has a 50% cap.
Net premium base
Net premium income means premium received less reinsurance premium paid during the relevant tax year.
Practical checklist
- Separate insurance categories and identify terrorism-risk cover.
- Reconcile premiums received and reinsurance premiums paid.
- Track current disallowances and next-year revenue-account credits.
Avoid
- Do not apply this rule to life-insurance computation.
- Do not calculate the percentage on gross premium without the defined reinsurance reduction.
FAQs
Does marine insurance include Export Credit Insurance?
Yes. Rule 330(3)(a) expressly includes it.
What is net premium income for this rule?
The premium amount received, reduced by the reinsurance premium paid during the relevant tax year.
Is the cap always 100%?
No. The fire or miscellaneous insurance category in clause (b), excluding the clause (a) cases, has a 50% cap.