Insurance Business Income Computation under the Income Tax Act 2025 (Section 55, Schedule XIV)

Under the Income-tax Act, 2025, the profits and gains of any insurance business are computed under Schedule XIV, not under the usual business-income rules. Section 55 says so, and it covers insurance carried on by a mutual insurance company or a co-operative society as well. Life insurance profit is the annual average of the actuarial surplus; other insurance starts from the profit before tax in the insurer's profit and loss account, with set adjustments.

This guide explains how the schedule works for life insurers, general (non-life) insurers and non-resident insurers with Indian branches. It follows the Act as amended by the Finance Act, 2026, effective 1 April 2026 (tax year 2026-27). It does not cover how a policyholder is taxed on premiums or claims.

What does section 55 of the Income-tax Act 2025 say?

Section 55 applies "irrespective of anything to the contrary" in the rules for the heads "Income from house property", "Capital gains" and "Income from other sources", in section 390(5) and (6), and in sections 26 to 54. The profits and gains of any business of insurance must be computed as per Schedule XIV. Section 55 also names mutual insurance companies and co-operative societies carrying on insurance business, so they follow the same schedule.

Part of Schedule XIV	Paragraphs	What it covers
A. Life insurance business	1 to 3	Separate computation, annual average of surplus, tax credit
B. Other insurance business	4	Profit before tax with add-backs and deductions
C. Other provisions	5 and 6	Non-resident insurers, meaning of "investments" and "life insurance business"

Which method applies to my insurance business?

How is the profit of a life insurance business computed?

Three rules in Part A:

• Separate computation (paragraph 1). If a person is engaged in life insurance business in the tax year, its profits and gains are computed separately from any other business of that person.
• Annual average of surplus (paragraph 2(1)). The profit is the annual average of the surplus. The surplus is the one disclosed by the actuarial valuation made as per the Insurance Act, 1938, for the last inter-valuation period ending before the tax year begins. It is adjusted to exclude any surplus or deficit belonging to an earlier inter-valuation period.
• Add back inadmissible expenditure (paragraph 2(2)). Any expenditure inadmissible under section 34 in computing business profits is added to the life insurance profit.

"Inter-valuation period" is the gap between two actuarial valuations of the insurer's liabilities. It can be longer than a year, which is why the schedule takes an annual average.

Worked example 1: life insurer, three-year valuation period

Assumptions: tax year 2026-27. The last inter-valuation period ending before 1 April 2026 was three years. The actuarial valuation disclosed a surplus of Rs 90 crore for that period, with nothing from earlier periods to exclude. Expenditure of Rs 1.2 crore is inadmissible under section 34. The figures are illustrative.

Step	Working	Rs crore
1. Surplus of the inter-valuation period	As per actuarial valuation	90.00
2. Annual average	90 divided by 3 years	30.00
3. Add inadmissible expenditure	Paragraph 2(2)	1.20
Profits and gains of life insurance business	30.00 + 1.20	31.20

How is tax deducted at source credited for life insurers?

Paragraph 3 applies when the assessment uses the annual average of a surplus from an inter-valuation period longer than twelve months. In working out the tax payable for that year, credit is not given under section 390 for tax paid in the preceding tax year. Credit is given for the annual average of the tax deducted at source from interest on securities or otherwise during that period.

Example: tax deducted at source across the three years was Rs 6 crore in total. The credit is Rs 6 crore divided by 3, which is Rs 2 crore.

How is the profit of general (non-life) insurance computed?

Under paragraph 4(1), the profit of any insurance business other than life is the profit before tax and appropriations shown in the profit and loss account prepared as per the Insurance Act, 1938, the rules under it, the Insurance Regulatory and Development Authority Act, 1999 or its regulations. Four adjustments are then made:

Para	Adjustment	Direction
4(1)(a)	Expenditure or allowance inadmissible under sections 28 to 54, including amounts debited as a provision for tax, dividend, reserve or any other prescribed provision	Add back
4(1)(b)	Gain or loss from realisation of investments, if not already credited or debited to the profit and loss account	Add gain, deduct loss
4(1)(c)	Provision for diminution in investment value debited to the profit and loss account	Add back
4(1)(d)	Amount carried over to a reserve for unexpired risks, as may be prescribed	Deduct

"Investments" include securities, stocks and shares (paragraph 6(1)(a)). Paragraph 4(1)(a) is "subject to the other provisions of this paragraph", which are the timing rules below.

Timing rules for items that were added back

• Section 37 amounts (paragraph 4(2)). An amount payable under section 37 that was added back is allowed as a deduction in the tax year in which it is actually paid.
• Section 35(b)(i) or (ii) amounts (paragraph 4(3)). Amounts not deductible under those sub-clauses and added back are allowed later, in a tax year in line with those sub-clauses. This paragraph was inserted by the Finance Act, 2026 with effect from 1 April 2026.

Worked example 2: general insurer

Assumptions: tax year 2026-27. All figures are illustrative and in Rs crore. The business is fire insurance with net premium income of Rs 10 crore, so the Rs 4 crore reserve is within the 50% cap in rule 330(1)(b) (Rs 5 crore).

Step	Para	Rs crore
Profit before tax per profit and loss account	4(1)	48.00
Add: expenditure inadmissible under sections 28 to 54	4(1)(a)	3.50
Add: gain on sale of investments, not credited to the profit and loss account	4(1)(b)	1.50
Add: provision for diminution in investment value	4(1)(c)	2.00
Less: amount carried to reserve for unexpired risks	4(1)(d)	(4.00)
Profits and gains of the insurance business		51.00

Check: 48.00 + 3.50 + 1.50 + 2.00 = 55.00; 55.00 less 4.00 = 51.00.

What is the limit on the reserve for unexpired risks?

Rule 330 of the Income-tax Rules, 2026 caps the amount carried to the reserve (including any additional reserve) that is deductible under paragraph 4(1)(d). The cap is a percentage of the tax year's net premium income, which is premium received less reinsurance premium paid.

Class of business	Cap on reserve
Fire or engineering insurance covering terrorism risks	100% of net premium income
Fire or miscellaneous insurance, other than the above	50% of net premium income
Marine insurance (includes Export Credit Insurance)	100% of net premium income

Any excess that is not allowed is not included in the total income of the next tax year in the revenue account to which it was credited (rule 330(2)).

How is a non-resident insurer's Indian profit computed?

Paragraph 5(1) covers a non-resident engaged in insurance business through its branches in India. In the absence of more reliable data, its Indian profit may be deemed to be the same proportion of its global income as its premium income from India bears to its total premium income. For a non-resident's life insurance business, global income is computed as per the Act for the profits of life insurance business carried on in India (paragraph 5(2)).

Worked example 3: non-resident general insurer

Assumptions: tax year 2026-27, no more reliable data available. Global income Rs 200 crore. Total premium income Rs 600 crore, of which Rs 30 crore is derived from India.

Step	Working	Result
Share of Indian premium	30 divided by 600	5%
Deemed Indian profit	5% of Rs 200 crore	Rs 10 crore

Real-life scenarios

• Ravi, finance head at a life insurer. His company's valuation covers three years. When the return is prepared, he works with one-third of the surplus, adds the section 34 items and claims credit for one-third of the tax deducted at source across the period. He does not claim the preceding year's tax credit under section 390.
• Meena, accountant at a general insurer. Her profit and loss account already shows a Rs 2 crore provision for fall in the value of shares. She adds it back under paragraph 4(1)(c), because the schedule starts from the book profit and then corrects it.
• Imran, tax manager at a co-operative society that runs an insurance scheme. Section 55 names co-operative societies, so he computes the profit of that insurance business under Schedule XIV and not under the general business-income rules. A separate non-insurance business of the same society follows the normal rules.

What are the common mistakes in insurance business computation?

• Using sections 28 to 54 for the whole profit. Section 55 overrides them. They only matter as the test for what is added back under paragraph 4(1)(a), or under section 34 for life insurers.
• Not averaging. A life insurer's surplus is an annual average. Taking the full multi-year surplus overstates one year's profit.
• Mixing a life business with other business. Paragraph 1 requires separate computation of life insurance profit.
• Forgetting the later deduction. Section 37 amounts added back are allowed in the year they are actually paid (paragraph 4(2)).
• Double counting investment gains. Paragraph 4(1)(b) applies only if the gain or loss is not already credited or debited to the profit and loss account.

Quick reference

Question	Answer	Where
Which schedule?	Schedule XIV	Section 55
Life insurer's profit	Annual average of actuarial surplus, plus section 34 add-backs	Para 2
Other insurer's starting point	Profit before tax and appropriations	Para 4(1)
TDS credit, valuation period over 12 months	Annual average of TDS during the period; no section 390 credit for the preceding year	Para 3
Non-resident branch profit	Global income times India premium share, if no better data	Para 5

Where is this in the Act?

• Section 55: insurance business computed as per Schedule XIV
• Schedule XIV, Part A, paragraphs 1 to 3: life insurance business
• Schedule XIV, Part B, paragraph 4: other insurance business
• Schedule XIV, Part C, paragraphs 5 and 6: non-residents and interpretation
• Related: sections 28 to 54 (business computation), section 34, section 35(b), section 37, section 390 (tax credit)

How can a CA firm track insurance clients' computations?

Insurance computations involve actuarial reports, valuation periods and add-back schedules that sit across several workpapers. A CA firm can keep those tasks, documents and deadlines for each client in one place with Finexo's practice management software. It does not compute the tax. For another worked guide in this series, see TDS on rent under the Income Tax Act 2025.

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.