TAXATION MANAGEMENT
Presented By :
Sana Riaz (0185)
Saira Khalid (0201)
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.
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.

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.
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
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.
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.
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:
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.
FOR THE PURPOSES OF CLAUSE (A) OF SUBRULE (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.
FOR THE PURPOSES OF CLAUSE (A) OF SUBRULE (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.