Income Tax on Life Insurance Profit
UNIVERSITY OF DHAKA
Department of Accounting & Information Systems
BBA Program
A term paper on “Income tax calculation procedure of life insurance companies as per Income Tax Ordinance 1984”
Submitted To:
Dhiman Kumar Chowdhury
Professor
Dept. of Accounting & Information Systems
University of Dhaka
Submitted By:
Md. Afzal Hossain
BBA 12th Batch
ID: 12094
Date of Submission: 22 August 2010.
Chapter 01
Introduction
It is a common knowledge that the true profit of insurance business cannot correctly be determined under the ordinary method of accounting. In life insurance the revenue account would serve only to indicate the savings of the year represented by the excess of the current year’s income over the expenditure and the balance sheet would disclose the nature of the securities and other assets held by the company as also its liabilities (exclusive of the company’s current liability on all the policies in force) at each balancing time. The reason is that the company receives money by way of premiums from year to year and promises to pay in exchange a lump sum represented by the face value of the policies in certain events happening in the future, and consequently, the savings of any year can not by any means be regarded as the year’s profit.
Because of this reason the Income Tax Ordinance 1984 has provided a special method of computing the profits of a company doing insurance business. By virtue of section 28(2) (a) the assessment of insurance company is completely governed by the rules contained in the Fourth Schedule to the Ordinance. Therefore, the following provisions are implicitly excluded while computing the profits of an insurance company:
Section 22: Interest on Securities
Section 23: Deductions from interest on Securities
Section 24: Income from House Property
Section 25: Deduction from income from house property
Section 28: Income from Business or Profession
Section 30: Deduction not admissible
Department of Accounting & Information Systems
BBA Program
A term paper on “Income tax calculation procedure of life insurance companies as per Income Tax Ordinance 1984”
Submitted To:
Dhiman Kumar Chowdhury
Professor
Dept. of Accounting & Information Systems
University of Dhaka
Submitted By:
Md. Afzal Hossain
BBA 12th Batch
ID: 12094
Date of Submission: 22 August 2010.
Chapter 01
Introduction
It is a common knowledge that the true profit of insurance business cannot correctly be determined under the ordinary method of accounting. In life insurance the revenue account would serve only to indicate the savings of the year represented by the excess of the current year’s income over the expenditure and the balance sheet would disclose the nature of the securities and other assets held by the company as also its liabilities (exclusive of the company’s current liability on all the policies in force) at each balancing time. The reason is that the company receives money by way of premiums from year to year and promises to pay in exchange a lump sum represented by the face value of the policies in certain events happening in the future, and consequently, the savings of any year can not by any means be regarded as the year’s profit.
Because of this reason the Income Tax Ordinance 1984 has provided a special method of computing the profits of a company doing insurance business. By virtue of section 28(2) (a) the assessment of insurance company is completely governed by the rules contained in the Fourth Schedule to the Ordinance. Therefore, the following provisions are implicitly excluded while computing the profits of an insurance company:
Section 22: Interest on Securities
Section 23: Deductions from interest on Securities
Section 24: Income from House Property
Section 25: Deduction from income from house property
Section 28: Income from Business or Profession
Section 30: Deduction not admissible
Bibliography: 1. Insurance Act 1938 2. Insurance Act (Amendment) 2010 3. “Laws & Practice of Bangladesh Income Tax” Third Edition, 2008, M.A. Baree, FCA, 4.