4. INSURANCE BUSINESS
A business that provides coverage, in the form
of compensation resulting from loss, damages,
injury, treatment or hardship in exchange for
premium payments. The company calculates the
risk of occurrence then determines the cost to
replace (pay for) the loss to determine the
premium amount.
5. PARTIES TO THE INSURANCE CONTRACT
Insured:
The insured, is the person in whose favor, the contract is
made and who is indemnified upon the happening of a
specified contingency or event.
Insurer:
Insurer or the insurance company agrees to pay for the
future financial losses of the insured against a regular
payment of premium.
6. TYPES OF INSURANCE CONTRACT :
CONTRACT OF INDEMNITY:
Except the life insurance contract ,all other types of
insurance contracts are contracts of indemnity.These
contracts are fire insurance , marine insurance , theft
insurance , etc.
LIFE INSURANCE CONTRACT:
This contract is not a contract of indemnity.Value of life of
any human being cannot be estimated hence it is very
difficult to calculate the exact amount of loss . Under such
contracts insured pays a fixed premium every year and
either at the expiry of policy or on his death.
7. PROVISIONS FOR INSURANCE BUSINESS
Section 99 and Fourth Schedule of the Income Tax
Ordinance ,2001 specify special provisions relating to the
taxation of insurance business.
The Fourth Schedule
(see section 99)
RULES FOR THE COMPUTATION OF THE PROFITS AND
GAINS OF INSURANCE BUSINESS
8. PROFITS ON LIFE INSURANCE TO BE COMPUTED
SEPARATELY
The profits and gains of a taxpayer carrying on life
insurance business shall, from whatever source derived, be
chargeable under the head "Income from business or
profession" and shall be computed separately from his
income from any other business.
9. COMPUTATION OF PROFITS AND GAINS OF LIFE
INSURANCE BUSINESS.-
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, net of adjustments
under section 22(8), 23(8) and 23(11) so as to exclude from
it any expenditure other than mentioned under the provision
of section 29 , allowed as a deduction in computing profits
and gains of a business.
10. COMPUTING THE SURPLUS UNDER RULE 2
Following are the provisions:
1) The amounts paid to, or reserved for, or expended
on behalf of, policy-holders shall be allowed as a
deduction:
2) a) Any amount either written off or reserved in the
accounts or through the actuarial valuation balance
sheet to meet depreciation, or loss on the realisation,
of investments, shall be allowed as a deduction
b) Any sums taken credit for in the accounts or actuarial
valuation balance sheet on account of appreciation,
or gains on the realisation of investments shall be
included in the surplus:
11. COMPUTING THE SURPLUS UNDER RULE 2
3) Interest received in respect of any securities of the
Government which have been issued with the condition
that interest thereon shall not be liable to tax shall be
excluded.
12. FOR THE PURPOSES OF CLAUSE (A) OF SUB-RULE
(1)
If any amount reserved for policy-holders ceases to be
so reserved, and is not paid to, or expended on
behalf of policy-holders, the sums previously allowed
as a deduction under this Ordinance or the repealed
Ordinance shall be treated as part of the respective
statutory fund for the tax year in which the amount
ceased to be so reserved.
13. FOR THE PURPOSES OF CLAUSE (A) OF SUB-RULE
(1)
If it appears to the Commissioner, after consultation with the
Securities and Exchange Commission of Pakistan, that the
rate of profit on debt or other factors employed in
determining the liability in respect of outstanding policies is
inconsistent with the valuation of investments so as
artificially to reduce the surplus, the Commissioner may
make such adjustment as he thinks reasonable.