1. Profits of life insurance to be computed separately.—

In the case of any person who carries on, or at any time in the income year carried on, life insurance business, the profits and gains of such person from that business shall be computed separately from his income, profits or gains from any other business.

¹[ 2. Computation of profits and gains of life insurance business.—

The profits and gains of life insurance business, other than pension and annuity business, shall be computed in the following manner, namely:––

Higher of A and B, where,

A = K – L, where—

K = gross external incomings of the relevant income year;

L = all admissible management expenses for the relevant income year not exceeding the amount computed according to P+Q+R+S formula, where—

P = 7.5% (seven point five percent) of the premiums received during the relevant income year in respect of single premium life insurance policies;

Q = in respect of the first year’s premiums received in respect of other life insurance policies for which the number of annual premiums payable is less than 12 (twelve), or for the number of years during which premiums are payable is less than 12 (twelve), for each such premium or each such year, 7.5% (seven point five percent) of each first year’s premium or premium received during each of the relevant income years;

R = 90% (ninety percent) of the first year’s premium received during the income year in respect of all other life insurance policies;

S = 12% (twelve percent) of all renewal premiums received during the income year;

B = (U – V + W +X) / Y, where—

U = applicable any of the following three alternatives, namely:–

(i) surplus or deficit disclosed by the actuarial valuation for the assessment year in which assessment to be made; or

(ii) where surplus or deficit cannot be determined according to (i), surplus or deficit disclosed by the actuarial valuation made for the year immediately preceding to the relevant assessment year; or

(iii) where surplus or deficit cannot be determined according to (i) or (ii), surplus or deficit disclosed by the actuarial valuation made for the last intervaluation period;

V = surplus or deficit brought forward from the earlier period included in the actuarial valuation made for the assessment year in which assessment to be made;

W = interim or terminal bonus, called by whatever name, paid during the period of surplus or deficit;

X = aggregate of inadmissible deductions under the provisions of sections 49-55 during the period of surplus or deficit;

Y = 1 (one), or where the intervaluation period is more than one year and is accepted for the computation of P, in that case, aggregate of years of intervaluation period. ]

3. Computation of profits and gains of pension and annuity business.—

The profits and gains of pension and annuity business shall be taken to be the annual average of the surplus computed in the manner laid in clause (b) of paragraph 2.

4. Deductions.— In computing the surplus,—

(a) under clause (b) of paragraph, for the purpose of life insurance business, three-fourths of the amounts paid to or reserved for or expended on behalf of policy-holders, shall be allowed as a deduction, and under paragraph 3, the amounts paid to or reserved for or expended on behalf of the members of an approved superannuation fund shall be allowed as a deduction:

Provided that—

(i) in the first such computation made under this paragraph of any such surplus, no account shall be taken of any such amounts to the extent to which they are paid out of or in respect of any surplus brought forward from a previous intervaluation period;

(ii) if any amount so reserved for policy-holders or members of an approved superannuation fund, as the case may be, ceases to be so reserved, and is not paid to or expended on behalf of policy-holders or members of an approved superannuation fund, as the case may be, one-half or three-fourths of such amount or the entire amount, as the case may be, if it has been previously allowed as a deduction, shall be treated as part of the surplus for the period in which the said amount ceased to be so reserved;

(b) any amount either written off or reserved in the accounts or through the actuarial valuation balance-sheet to meet depreciation of or loss on the realization of securities or other assets, shall be allowed as a deduction and any sums taken credit for in the accounts or actuarial valuation balance-sheet on account of appreciation of or gains on the realization of the securities or other assets shall be included in the surplus:

Provided that if, upon investigation, it appears to the Deputy Commissioner of Taxes after consultation with the Controller of Insurance that having due regard to the necessity for making reasonable provision for bonuses to participating policy-holders and for contingencies, the rate of interest or other factor employed in determining the liability in respect of outstanding policy is materially inconsistent with the valuation of the securities and other assets so as artificially to reduce the surplus, such adjustment shall be made to the allowance for depreciation of or to the amount to be included in the surplus in respect of appreciation of, such securities and other assets as shall increase the surplus for the purposes of these paragraphs to a figure which is fair and just;

(c) 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.

5. Adjustment of tax paid by deduction at source.—

Where for any year an assessment of the profits and gains of life insurance business is made in accordance with the annual average of a surplus disclosed by a valuation for an inter-valuation period exceeding 12 (twelve) months, then, in computing the tax payable for that year, credit shall not be given in accordance with section 158 for the tax paid in the income year, but credit shall be given for the annual average of the tax paid by deduction at source from interest on securities or otherwise during such period.

6. Computation of profits and gains of other insurance business.—

(1) The profits and gains of any business of insurance other than life insurance shallbe taken to be the balance of the profits disclosed by the annual accounts, which are required to be prepared complying the provisions of the Insurance Act, 2010 (Act No. 13 of 2010)], after adjusting such balance so as to exclude from it any expenditure, other than expenditure which may under section 49-53 of this Act be allowed for, in computing the profits and gains of a business. Profits and losses on the realization of investments, and depreciation and appreciation of the value of investments shall be dealt with as provided in paragraph 4 for the business of life insurance.

²[ (2) A company shall make deductions equal to Z amount computed under sub-paragraph (1) from the balance of profit to meet exceptional loss in any year, where,-

Z = not exceeding 10% (ten percent) of the premium income of a company in that year. ]

(3) Notwithstanding anything to the contrary contained in this Act, where any amount is paid, appropriated or diverted out of, or from the amounts deducted under sub-paragraph (2) for purposes other than the meeting of an exceptional loss, such amount shall, together with the other premium income, if any, of the company for the year in which such payment, appropriation or diversion takes place, be deemed to be the premium income of the company for that year; and in the event of the liquidation of the company or the discontinuance of the business to which this paragraph applies, whichever is the earlier, the aggregate of the amounts deducted under sub-paragraph (2) (as reduced by the payments made out of such amounts to meet exceptional losses) shall, together with the other income, if any, of the company for the year in which it goes into liquidation or in which such business is discontinued, be deemed to be the income of the company for that year.

Explanation.—For the purposes of this paragraph—

(a) “exceptional loss” means the amount by which the aggregate loss in any year exceeds 50% (fifty percent) of the premium income of that year or 50% (fifty percent) of the average premium income of the three years immediately preceding that year, whichever is the higher, total world income of the company corresponding to the proportion which its premium income derived from Bangladesh bears to its total premium income;

(b) for the purposes of this paragraph, the total world income of life insurance companies not resident in Bangladesh whose profits are periodically ascertained by actuarial valuation, shall be computed in the manner laid down in these paragraphs for the computation of the profits and gains of life insurance business carried on in Bangladesh.

7. Profits and gains of non-resident person.—

The profits and gains of the branches in Bangladesh of an insurance company not resident in Bangladesh in the absence of more reliable data, may be deemed to be the proportion of the total world income of the company corresponding to the proportion which its premium income derived from Bangladesh bears to its total premium income.

Explanation.—For the purpose of the paragraph, the total world income of life insurance companies not resident in Bangladesh whose profits are periodically ascertained by actuarial valuation shall be computed in the manner laid down in these paragraphs for the computation of the profits and gains of the life insurance business carried on in Bangladesh.

8. Mutual Insurance Associations.—

Provisions of this part apply to the assessment of the profits of any business of insurance carried on by a mutual insurance association.

9. Explanation.— For the purposes of this Schedule.—

(a) “gross external incomings” means the full amount and incomings from interest, dividends, fines and fees and all other incomings from whatever source derived (except premium received from policy-holders and interest and dividends on any annuity fund) and includes also profits from reversions and on the sale or the granting of annuities, but excludes profits on the realization of securities or other assets:

Provided that incomings, including the annual value of the property occupied by the assessee, which but for the provisions of section 47 would have been assessable under section 36, shall be computed upon the basis laid down in the last named section, and that there shall be allowed from such gross incomings such deductions as are permissible under that section;

(b) “management expenses” means the full amount of expenses (including commissions) incurred exclusively in the management of the business of life insurance, and in the case of a company carrying on other classes of business as well as the business of life insurance in addition thereto, a fair proportion of the expenses incurred in the general management of the whole business. Bonuses or other sums paid to or reserved on behalf of policy-holders, depreciation of, and losses on the realization of securities or other assets and any expenditure other than expenditure which may under the provisions of section 48 be allowed in computing the profits and gains of a business are not management expenses for the purposes of this Schedule;

(c) “life insurance business” means life insurance business as defined in section 5(2) of Insurance Act, 2010 (Act no. 13 of 2010);

(d) “securities” includes stocks and shares;

(e) “pension and annuity business” means any life insurance business relating to a contract with the trustees of an approved superannuation fund, where such contract is-

(i) entered into only for the purposes of such fund, and

(ii) so framed that the liabilities undertaken thereunder by the person carrying on the insurance business correspond with the liabilities against which the contract is intended to secure such fund.