TAXATION


As per section 44 of the Income Tax Act 1961, the profits and gains of insurance business carried on by any person shall be computed and taxed in accordance with the rules contained in the first schedule.

a) Life Insurance Business 

The Finance Act, 1976 has inserted a new section in the Income Tax Act. Viz. section 115B. Accordingly, the rate applicable to income from life insurance business from the assessment year 1977-78 will be 12 '% percent. A surcharge of 10 percent on income tax is also payable. Since as per IRDA regulations, policyholders' profit and shareholders' profit can be arrived at separately, the former should be taxed at 7.5 percent and the latter should be subject to the tax rates applicable to corporate sector.

b) General insurance business 

The rates of tax applicable to income from general insurance business as at 50 % of the income and surcharge on income tax income tax, and shall be those which are applicable to companies as per Finance Act of the year

c) Policy claims 

The insurance claims including bonus are totally tax free as per section 10 (10D) of the Income Tax Act, 1961 However, the insurance claims paid to policy holders in the event of death or disability will be subject to payment of income tax according to the new Direct Taxes Code proposals. Thus, the sums received under a life insurance policy, including any bonus, will be taxed if the proposals are implemented. Only a pure life insurance policy is exempted. Under it, money is paid only when death occurs. Similarly, under the Direct Taxes Code the maturity proceeds of an insurance policy shall be exempted only if the premium does not exceed 5 percent of the capital sum assured.


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