- SCHEDULE-XIV INSURANCE BUSINESS

Income-tax Act, 2025

At a Glance

This document-set compares SCHEDULE XIV - "INSURANCE BUSINESS" - as appearing in the Income-tax Act, 2025 (Document 1) and the Income Tax Bill, 2025 - Old Version (Document 2). It governs computation of taxable profits for life and other insurance businesses and applies to insurers and non-resident insurers operating through branches in India. Effective dates or decision dates: Not stated in the documents.

Background & Scope

Statutory hook: Schedule XIV is attached to the Income-tax Act (See section 55). It sets special computation rules for profits and gains of insurance businesses. Scope: the Schedule divides into A (Life insurance business), B (Other insurance business), and C (Other provisions). The text includes references to actuarial valuations made under the Insurance Act, 1938 (4 of 1938), and to the Insurance Regulatory and Development Authority Act, 1999 (4 of 1999), and the Life Insurance Corporation Act, 1956 (31 of 1956) for references to LIC. Definitions provided: "investments" and "life insurance business" (as defined in section 2(11) of the Insurance Act, 1938). The documents supply other operative phrases used throughout the Schedule. No further definitions or explanatory notes are provided.

Statutory Provision Mode

Text & Scope

Coverage and primary rules:

• Paragraph A(1): If a person is engaged in life insurance business during the tax year, that business's profits and gains shall be computed separately from any other business.
• Paragraph A(2): Profits and gains from life insurance are the annual average of the surplus disclosed by the actuarial valuation under the Insurance Act, 1938 for the last inter-valuation period ending before the commencement of the tax year, adjusted to exclude any surplus or deficit from earlier inter-valuation periods. Any expenditure inadmissible u/s 34 for other businesses shall be added to such profits and gains.
• Paragraph A(3): Where assessment is based on an annual average of surplus disclosed by a valuation for an inter-valuation period exceeding twelve months, computing income-tax for the year: (a) credit shall not be given as per specified cross-reference (see Differences section) for income-tax paid in the preceding tax year; and (b) credit shall be given for the annual average of income-tax paid by deduction at source from interest on securities or otherwise during such period.
• Paragraph B(1): For insurance business other than life insurance, profits and gains shall be the "profit before tax and appropriations" as disclosed in the profit and loss account prepared under the Insurance Act, 1938 or IRDA Act or regulations, subject to specified add-backs and allowances: (a) add back inadmissible expenditures/allowances (including provisions for tax, dividend, reserve, or any other provision as may be prescribed) inadmissible u/ss 28 to 54; (b) add/deduct gains or losses on realisation of investments if not already in P&L; (c) add back provisions for diminution in investment value debited to P&L; (d) allow as deduction amounts carried to a reserve for unexpired risks as may be prescribed.
• Paragraph B(2): Amounts added under B(1)(a) that are payable u/s 37 shall be allowed as a deduction in the year actually paid.
• Paragraph C(5): For non-residents operating insurance via branches in India and in absence of reliable (or "more reliable") data, profits may be deemed as the proportion of global income corresponding to the proportion of premium income from India to total premium income. Paragraph C(5)(2) clarifies computation of global income for life insurance business of a non-resident be computed as per this Act for life insurance carried on in India.
• Paragraph C(6): Interpretation clause: (a) "investments" include securities, stocks and shares; (b) "life insurance business" means that term as in section 2(11) of the Insurance Act, 1938. Additionally, references to the Insurance Act, 1938 regarding LIC shall be treated as references to that Act or section 43 of the Life Insurance Corporation Act, 1956.

Interpretation

The Schedule mandates that life insurance profits be computed on an actuarial-surplus-average basis rather than purely on accounting profit, showing legislative intent to align income-tax computation for life insurers with actuarial valuation cycles. For non-life insurers the tax base is tied to the profit before tax and appropriations per statutory financial statements with enumerated tax adjustments. The text manifests an intent to use sector-specific statutory accounts and actuarial valuations as primary inputs. No further legislative history or intent statements are included.

Exceptions/Provisos

Carve-outs and conditions explicitly provided in the Schedule:

• For life insurers, where inter-valuation period exceeds twelve months, treatment of tax credits is specially governed (see paragraph A(3)); the prior-year credit is excluded as per cross-reference and averaging of TDS credits is allowed.
• For non-life insurers, certain amounts carried to reserve for unexpired risks are specifically allowed as deductions "as may be prescribed".
• Amounts added back under paragraph B(1)(a) but payable u/s 37 are allowed when actually paid (timing proviso).

Illustrations

• Example 1: A life insurer with actuarial valuations covering an inter-valuation period of 18 months would compute the taxable life-insurance surplus as the annual average of the surplus from the last inter-valuation period, excluding earlier inter-period surplus/deficits; while computing tax the section A(3) rules on credit for prior-year tax and TDS averaging apply. (Illustration consistent with text; specific numbers Not stated in the document.)
• Example 2: A non-life insurer's P&L shows a provision for diminution in value of investments debited to P&L; per paragraph B(1)(c) that provision is to be added back in computing taxable profits. (Specific monetary impact Not stated in the document.)

Interplay

The Schedule expressly requires reliance on accounts/statements prepared under the Insurance Act, 1938, IRDA Act, 1999, and regulations thereunder; it also cross-refers to sections 28-54, 34, 37 and a section-numbered provision referenced in paragraph A(3). It anticipates delegated prescription ("as may be prescribed") for certain reserves and provisions. No specific notifications, rules or circulars are cited in the text.

Differences between the two provisions and practical impact

• Section reference in paragraph 3(a): Document 1 refers to "section 390" for non-provision of credit for income-tax paid in the preceding tax year; Document 2 refers to "section 386".
  • Practical impact: The operative legal cross-reference differs. If section numbers differ materially in the Act, this changes which statutory mechanism governs denial of credit for prior-year tax when an inter-valuation period exceeds twelve months. The document texts do not state the content of either section, so the practical effect depends on the actual content of section 386 versus section 390 in the enacted statute. Not stated in the document: which section actually provides the intended rule.
• Phraseology in paragraph 4(a): Document 1 adds the introductory qualification "subject to the other provision of this rule," before listing items to be added back, whereas Document 2 omits that introductory phrase.
  • Practical impact: The added qualification in Document 1 signals that the add-back in clause (a) may be limited by other provisions within the same rule (i.e., Schedule paragraph 4). That can narrow or contextualise the sweep of add-backs; Document 2's broader wording may be read as more absolute. The documents do not identify which "other provision" is intended to limit clause (a). Not stated in the document: the specific provisions that would limit clause (a).
• Wording relating to availability of data for non-resident allocation (paragraph 5(1)): Document 1 uses the phrase "in the absence of more reliable data," while Document 2 uses "in the absence of reliable data."
  • Practical impact: Document Rs. 1's "more reliable" suggests a comparative standard (i.e., more reliable than other available measures), potentially allowing alternative bases where comparatively superior data exists; Document 2's "reliable" suggests a threshold standard (i.e., no reliable data at all). The documents do not supply examples or tests of reliability.
• Minor drafting and punctuation differences: Examples include Document 1's clause 2 heading omitting the preposition "from" ("profits and gains life insurance business")-likely a typographical lapse-while Document 2 reads "profits and gains from life insurance business." Clause 6(1)(a) uses "include" (Doc 1) vs "includes" (Doc 2).
  • Practical impact: These are drafting-level variations unlikely to change substantive effect, though typographical or grammatical lapses can create interpretive questions in close cases. The documents do not indicate any intention to change meaning arising from punctuation or typography.
• References to prescription/allowances wording: Both documents use "as may be prescribed" in various places; Document 1 sometimes inserts additional qualifiers such as "subject to the other provision of this rule."
  • Practical impact: Document 1's additional qualifiers may imply slightly greater internal limitation and reliance on delegated legislation. The documents do not provide the delegated rules/regulations.

Practical Implications

• Compliance and risk areas: Life insurers must ensure actuarial valuations and the method of annual averaging comply strictly with the Schedule's requirements; misapplication of inter-valuation adjustments or incorrect treatment of inadmissible expenditures may expose taxpayers to reassessment. For non-life insurers, careful reconciliation between statutory P&L items and tax adjustments (add-backs for inadmissible items, treatment of realisation gains/losses and diminution provisions) is required. The precise cross-reference in paragraph A(3) determines availability of prior-year tax credits; divergence across drafts creates a legal uncertainty until the correct statutory numbering is clarified.
• Record-keeping/evidence points: Retain actuarial valuation reports, inter-valuation period calculations, detailed working of annual average surplus, documentary evidence for provisions and realisation gains/losses, and records of tax paid by deduction at source during inter-valuation periods. For non-resident branches, maintain premium income segmentation (India v. total) and any alternative "more reliable" data used to allocate global profits.

Key Takeaways

• Life insurance taxable profit is calculated as the annual average of actuarial surplus for the last inter-valuation period, with prescribed adjustments and separate computation from other businesses.
• Non-life insurers use profit before tax and appropriations per statutory accounts, with specified add-backs and a permitted deduction for reserves for unexpired risks as prescribed.
• Special treatment applies when inter-valuation periods exceed twelve months regarding tax credit availability and averaging of TDS payments; the statutory cross-reference differs between drafts.
• Terminology differences between the Bill and the Act text (e.g., "reliable" vs "more reliable") may affect the standard for allocating global income of non-residents.
• Several provisions rely on "as may be prescribed" or cross-references to other sections and statutes, so final operational clarity depends on enacted section numbering and delegated rules not included in the documents.

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Full Text:

SCHEDULE XIV - INSURANCE BUSINESS

Life insurance taxable profit computed by annual average of actuarial surplus, separate from other business for tax purposes. Life insurance taxable profit must be computed separately as the annual average of actuarial surplus from statutory valuations excluding earlier inter-valuation surplus/deficits, with specified add-backs; non-life taxable income is the profit before tax and appropriations per statutory accounts subject to enumerated tax adjustments, and non-resident branch profits may be allocated by India-premium proportion absent suitably reliable alternative data.