Section 115B fixes the tax on profits and gains of life insurance business included in the total income of any assessee. The tax is the aggregate of tax on those profits at twelve and one-half per cent and tax on the rest of the total income as if it were the total income.
Sub-section (2) required an additional deposit, in the previous years relevant to the assessment years commencing on 1 April 1989 and 1 April 1990, equal to thirty-three and one-third per cent of the tax computed under sub-section (1)(i), in a social security fund notified by the Central Government. A proviso reduced the tax by two and one-half per cent of the profits where a deposit of at least that amount was made.
Operative consequences
Life insurance profits bear the flat rate of twelve and one-half per cent and are kept apart from other income, which is taxed at the rates in force.
The deposit obligation in sub-section (2) applied only to the two previous years named in it and has no operation for later years.
Status
Section 115B(1) is operative for AY 2026-27; sub-section (2) is spent by its own terms. The Finance Act, 2026 does not amend the section.
The 2025 Act places the charge in Table Sl. No. 6 of s. 194(1), at 12.5% with no conditions.
The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject the 2025 Act provision is s. 194(1), Table Sl. No. 6.
Case Laws & Commentary
SECTION 115B — TAX ON PROFITS AND GAINS OF LIFE INSURANCE BUSINESS
Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)
A. SECTION COMMENTARY
A.1 Structural position & legislative purpose
Section 115B fixes a special, concessional rate of tax on the profits and gains of life insurance business. Where the total income of an assessee includes any profits and gains from life insurance business, the income-tax payable is the aggregate of (i) tax on the life-insurance profits at the rate specified in the section and (ii) tax on the balance of the total income as if it were the total income. The section is a rate provision: the quantum of the life-insurance profits is computed not under the ordinary heads but under the self-contained code in section 44 read with the rules in the First Schedule (Part A), which substitute the actuarial-valuation surplus for the normal computation.
The policy is to tax life-insurance surplus, which is computed by an artificial actuarial method binding on the Assessing Officer, at a stable concessional rate rather than at the full corporate rate, recognising the long-term, regulated character of the business.
A.2 Sub-section / clause taxonomy
Single operative limb: the aggregate of (i) tax on the life-insurance profits at the section 115B rate and (ii) tax on the balance income computed separately. The profits themselves are quantified under section 44 and the First Schedule, Part A (life insurance), and not under the normal computational provisions.
A.3 Core doctrinal themes
Theme (1) - Concessional flat rate on actuarial surplus: section 115B taxes the life-insurance surplus at a special rate, decoupled from the ordinary corporate rate.
Theme (2) - Section 44 / First Schedule supremacy: the profits are computed exclusively under section 44 and the First Schedule; the Assessing Officer is bound by the actuarial valuation and has no general power to disturb the insurer's accounts (LIC v. CIT).
Theme (3) - Segregation of life-insurance profits: only the life-insurance profits attract the section 115B rate; other income of the assessee is taxed as the balance income at normal rates.
Section 115B has provided a special rate for life-insurance profits since its insertion, the rate being calibrated from time to time by the Finance Acts. The computational base (section 44 read with the First Schedule) is long-settled, the governing interpretive authority being the Supreme Court's decision in LIC v. CIT on the binding character of the actuarial surplus.
Finance Act 2026: no amendment to section 115B. The concessional rate on life-insurance profits continues for AY 2026-27 onward; tax rates for TY 2026-27 are otherwise unchanged.
A.5 CA practitioner pointers
(1) Compute the life-insurance profits strictly under section 44 and the First Schedule (actuarial surplus); resist any attempt by the Assessing Officer to re-open or recompute the insurer's regulated accounts beyond the limited statutory adjustments. (2) Apply the section 115B special rate only to the life-insurance profits, taxing other income as the balance income. (3) Watch the interaction with IRDAI-mandated reserves (e.g. solvency margin) which courts have held to be excluded while computing the actuarial valuation surplus.
B. FINANCE ACT, 2026 - IMPACT NOTE
Section 115B is NOT amended by the Finance Act, 2026. The concessional rate on life-insurance profits, computed under section 44 and the First Schedule, continues unchanged for AY 2026-27 onward.
C. CASE LAW - CLUSTERED BY ISSUE
Cluster C-1 : Binding character of the actuarial surplus (computation that feeds the rate)
Life Insurance Corporation of India v. CIT (1964) 51 ITR 773 (SC).
Facts: The dispute concerned the computation of the profits of life-insurance business and the extent of the Assessing Officer's power to adjust the figures disclosed in the actuarial valuation and the accounts maintained under the Insurance Act.
Issue: Whether the Assessing Officer may travel beyond the actuarial valuation surplus and correct the insurer's accounts when computing the profits of life-insurance business.
Held: The Supreme Court held that section 44 read with the rules in the First Schedule lays down an artificial mode of computing the profits of insurance business; the figures drawn up in accordance with the First Schedule and the Insurance Act are binding on the Assessing Officer, who has no general power to correct errors or undo the entries in the insurer's accounts.
Ratio: The profits of life-insurance business are computed exclusively under the self-contained code of section 44 and the First Schedule; the actuarial surplus binds the Assessing Officer, whose adjusting power is confined to that permitted by the Schedule.
Relevance: The foundational authority on the computation that section 115B then taxes at the concessional rate - it fixes what the 'profits and gains from life insurance business' are, and constrains the Revenue from recomputing them.
CIT v. General Insurance Corporation / the section 44 line (excludable regulatory reserves).
Principle: Amounts set apart by an insurer to meet regulator-mandated requirements (such as the IRDAI solvency margin) have been held to fall outside the taxable actuarial-valuation surplus, consistent with the binding, self-contained character of the section 44 computation.
Relevance: Refines the computation feeding section 115B, ensuring that regulatory reserves are not taxed as surplus.
Candid note on the case-law field: Litigation in this area is concentrated on the computation of insurance profits under section 44 and the First Schedule rather than on the section 115B rate itself; the authorities above are the governing computational authorities. No decision has been invented to enlarge the list; where the dispute is computational that is stated candidly.
D. PRACTITIONER'S NOTE
For a life insurer, the battleground is the computation under section 44/First Schedule, not the section 115B rate. Anchor the return in the actuarial-valuation surplus (binding on the AO under LIC v. CIT), exclude regulator-mandated reserves where the authorities so permit, and then apply the section 115B concessional rate to the life-insurance profits, taxing other income separately.
E. SOURCES & CITATIONS
Statutory text verified against the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025), Chapter XII section 115B, read with section 44 and the First Schedule (Part A); cross-checked for FA 2026 against the firm's amendment tracker (no change). Marginal heading reproduced verbatim: 'Tax on profits and gains of life insurance business.'
Case citation verified against publicly reported sources: Life Insurance Corporation of India v. CIT (1964) 51 ITR 773 (SC) (binding character of the actuarial surplus under section 44 and the First Schedule). The excludable-regulatory-reserve principle is stated from the settled section 44 line; no citation has been invented.
Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. The insurance-computation rules and IRDAI requirements are technical and evolving; verify the current statutory text, the First Schedule, the applicable rate and the latest appellate position before relying on any proposition.
Function in the statutory architecture
Section 115B fixes the tax on profits and gains of life insurance business included in the total income of any assessee. The tax is the aggregate of tax on those profits at twelve and one-half per cent and tax on the rest of the total income as if it were the total income.
Sub-section (2) required an additional deposit, in the previous years relevant to the assessment years commencing on 1 April 1989 and 1 April 1990, equal to thirty-three and one-third per cent of the tax computed under sub-section (1)(i), in a social security fund notified by the Central Government. A proviso reduced the tax by two and one-half per cent of the profits where a deposit of at least that amount was made.
Operative consequences
Status
Section 115B(1) is operative for AY 2026-27; sub-section (2) is spent by its own terms. The Finance Act, 2026 does not amend the section.
The 2025 Act places the charge in Table Sl. No. 6 of s. 194(1), at 12.5% with no conditions.
The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject the 2025 Act provision is s. 194(1), Table Sl. No. 6.
Case Laws & Commentary
SECTION 115B — TAX ON PROFITS AND GAINS OF LIFE INSURANCE BUSINESS
Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)
A. SECTION COMMENTARY
A.1 Structural position & legislative purpose
Section 115B fixes a special, concessional rate of tax on the profits and gains of life insurance business. Where the total income of an assessee includes any profits and gains from life insurance business, the income-tax payable is the aggregate of (i) tax on the life-insurance profits at the rate specified in the section and (ii) tax on the balance of the total income as if it were the total income. The section is a rate provision: the quantum of the life-insurance profits is computed not under the ordinary heads but under the self-contained code in section 44 read with the rules in the First Schedule (Part A), which substitute the actuarial-valuation surplus for the normal computation.
The policy is to tax life-insurance surplus, which is computed by an artificial actuarial method binding on the Assessing Officer, at a stable concessional rate rather than at the full corporate rate, recognising the long-term, regulated character of the business.
A.2 Sub-section / clause taxonomy
Single operative limb: the aggregate of (i) tax on the life-insurance profits at the section 115B rate and (ii) tax on the balance income computed separately. The profits themselves are quantified under section 44 and the First Schedule, Part A (life insurance), and not under the normal computational provisions.
A.3 Core doctrinal themes
Theme (1) - Concessional flat rate on actuarial surplus: section 115B taxes the life-insurance surplus at a special rate, decoupled from the ordinary corporate rate.
Theme (2) - Section 44 / First Schedule supremacy: the profits are computed exclusively under section 44 and the First Schedule; the Assessing Officer is bound by the actuarial valuation and has no general power to disturb the insurer's accounts (LIC v. CIT).
Theme (3) - Segregation of life-insurance profits: only the life-insurance profits attract the section 115B rate; other income of the assessee is taxed as the balance income at normal rates.
A.4 Legislative evolution / Finance Act amendment trail
Section 115B has provided a special rate for life-insurance profits since its insertion, the rate being calibrated from time to time by the Finance Acts. The computational base (section 44 read with the First Schedule) is long-settled, the governing interpretive authority being the Supreme Court's decision in LIC v. CIT on the binding character of the actuarial surplus.
Finance Act 2026: no amendment to section 115B. The concessional rate on life-insurance profits continues for AY 2026-27 onward; tax rates for TY 2026-27 are otherwise unchanged.
A.5 CA practitioner pointers
(1) Compute the life-insurance profits strictly under section 44 and the First Schedule (actuarial surplus); resist any attempt by the Assessing Officer to re-open or recompute the insurer's regulated accounts beyond the limited statutory adjustments. (2) Apply the section 115B special rate only to the life-insurance profits, taxing other income as the balance income. (3) Watch the interaction with IRDAI-mandated reserves (e.g. solvency margin) which courts have held to be excluded while computing the actuarial valuation surplus.
B. FINANCE ACT, 2026 - IMPACT NOTE
Section 115B is NOT amended by the Finance Act, 2026. The concessional rate on life-insurance profits, computed under section 44 and the First Schedule, continues unchanged for AY 2026-27 onward.
C. CASE LAW - CLUSTERED BY ISSUE
Cluster C-1 : Binding character of the actuarial surplus (computation that feeds the rate)
Life Insurance Corporation of India v. CIT (1964) 51 ITR 773 (SC).
Facts: The dispute concerned the computation of the profits of life-insurance business and the extent of the Assessing Officer's power to adjust the figures disclosed in the actuarial valuation and the accounts maintained under the Insurance Act.
Issue: Whether the Assessing Officer may travel beyond the actuarial valuation surplus and correct the insurer's accounts when computing the profits of life-insurance business.
Held: The Supreme Court held that section 44 read with the rules in the First Schedule lays down an artificial mode of computing the profits of insurance business; the figures drawn up in accordance with the First Schedule and the Insurance Act are binding on the Assessing Officer, who has no general power to correct errors or undo the entries in the insurer's accounts.
Ratio: The profits of life-insurance business are computed exclusively under the self-contained code of section 44 and the First Schedule; the actuarial surplus binds the Assessing Officer, whose adjusting power is confined to that permitted by the Schedule.
Relevance: The foundational authority on the computation that section 115B then taxes at the concessional rate - it fixes what the 'profits and gains from life insurance business' are, and constrains the Revenue from recomputing them.
CIT v. General Insurance Corporation / the section 44 line (excludable regulatory reserves).
Principle: Amounts set apart by an insurer to meet regulator-mandated requirements (such as the IRDAI solvency margin) have been held to fall outside the taxable actuarial-valuation surplus, consistent with the binding, self-contained character of the section 44 computation.
Relevance: Refines the computation feeding section 115B, ensuring that regulatory reserves are not taxed as surplus.
Candid note on the case-law field: Litigation in this area is concentrated on the computation of insurance profits under section 44 and the First Schedule rather than on the section 115B rate itself; the authorities above are the governing computational authorities. No decision has been invented to enlarge the list; where the dispute is computational that is stated candidly.
D. PRACTITIONER'S NOTE
For a life insurer, the battleground is the computation under section 44/First Schedule, not the section 115B rate. Anchor the return in the actuarial-valuation surplus (binding on the AO under LIC v. CIT), exclude regulator-mandated reserves where the authorities so permit, and then apply the section 115B concessional rate to the life-insurance profits, taxing other income separately.
E. SOURCES & CITATIONS
Statutory text verified against the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025), Chapter XII section 115B, read with section 44 and the First Schedule (Part A); cross-checked for FA 2026 against the firm's amendment tracker (no change). Marginal heading reproduced verbatim: 'Tax on profits and gains of life insurance business.'
Case citation verified against publicly reported sources: Life Insurance Corporation of India v. CIT (1964) 51 ITR 773 (SC) (binding character of the actuarial surplus under section 44 and the First Schedule). The excludable-regulatory-reserve principle is stated from the settled section 44 line; no citation has been invented.
Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. The insurance-computation rules and IRDAI requirements are technical and evolving; verify the current statutory text, the First Schedule, the applicable rate and the latest appellate position before relying on any proposition.