Indian income tax law | Updated 26 October 2026

Section 115B: Tax on Profits and Gains of Life Insurance Business

Section 115B of the Income-tax Act, 1961 prescribed a special tax rate for profits and gains of life insurance business. For tax years beginning on or after 1 April 2026, the corresponding provisions are contained in the Income-tax Act, 2025, including section 194 and section 55 read with Schedule XIV.

Key point: The special income-tax rate on qualifying profits and gains of life insurance business is 12.5%, before applicable surcharge and health and education cess. It applies to the insurer's business profits, not automatically to insurance proceeds received by a policyholder.

1. What does Section 115B provide?

Under section 115B(1), where an assessee's total income includes profits and gains of life insurance business, tax is the sum of (i) tax at 12.5% on those life insurance business profits and (ii) tax on the remaining total income calculated as if the life insurance profits were excluded. This separates the special-rate insurance business income from income chargeable under other applicable provisions.

The official text is available from the Income Tax Department's Section 115B page and the Income-tax Act, 1961, as amended.

2. Tax rate and calculation

Income component	Tax treatment
Profits and gains of life insurance business	12.5% special rate
Other taxable income, if any	Taxed under the otherwise applicable provisions
Surcharge and health and education cess	Additional, where applicable

Illustration: If taxable profits from life insurance business are Rs. 10 crore, the basic tax attributable to those profits is Rs. 1.25 crore (12.5% of Rs. 10 crore), before surcharge and cess. Any other taxable income is computed separately under the applicable provisions.

3. Computation of life insurance business profits

Under the 1961 Act, section 44 read with the First Schedule provided the special computation mechanism for insurance business. In particular, the life insurance computation is linked to the annual average of the actuarial surplus, subject to prescribed adjustments and statutory disallowances. Ordinary business profit calculations alone are not sufficient.

For tax years governed by the Income-tax Act, 2025, section 55 read with Schedule XIV, Part A governs the computation. Key rules include:

Profits from life insurance business must be computed separately from other business profits.
The starting point is the annual average of the surplus disclosed by actuarial valuation for the relevant inter-valuation period, with adjustments to exclude prior-period surplus or deficit.
Expenditure inadmissible under the applicable statutory provisions must be added back.
Special provisions govern credit for tax deducted at source where the valuation period exceeds twelve months.

4. Income-tax Act, 2025: Corresponding provisions

The Income-tax Act, 2025 took effect from 1 April 2026. Its section 194 contains the special-rate framework for certain incomes, including life insurance business profits at 12.5%. Section 55 and Schedule XIV address the computation of insurance profits. These provisions should be read together for the relevant tax year.

Read the official Income-tax Act, 2025 (PDF) for the enacted text. Earlier assessment years and transitional matters may continue to require reference to the 1961 Act and applicable saving provisions.

5. Historical provision: Section 115B(2)

Sub-section (2) contained a special social security fund deposit requirement for the previous years relevant to assessment years beginning 1 April 1989 and 1 April 1990. It required an additional deposit equal to one-third of the tax computed on life insurance profits, subject to a proviso allowing specified relief where at least 2.5% of those profits was deposited in the notified fund.

This provision is historical and does not create a general ongoing social security fund deposit obligation for current tax years. It remains relevant when reading older assessments, legislative history or disputes arising from those periods.

6. Important definitions

Life insurance business

For Schedule XIV of the Income-tax Act, 2025, the expression refers to life insurance business as defined in section 2(11) of the Insurance Act, 1938. The insurance business is subject to its own statutory accounting and actuarial framework.

Actuarial valuation

An actuarial valuation evaluates the insurer's liabilities and related financial position using actuarial assumptions. The statutory surplus or deficit derived from the valuation is central to the special tax computation.

Taxable profits and gains

The profits determined under the special insurance computation rules, rather than gross premiums collected or investment receipts taken in isolation.

7. Practical compliance considerations

Identify income attributable to life insurance business separately from any other taxable income.
Reconcile actuarial valuation results with the adjustments prescribed by the relevant First Schedule or Schedule XIV.
Apply the 12.5% basic rate to the eligible taxable life insurance profits, then determine surcharge, cess, tax credits and other liabilities as applicable.
Use the statute applicable to the tax year and retain actuarial reports, tax computation schedules and supporting records.

8. Frequently asked questions

Is Section 115B tax imposed on life insurance policyholders?

No. Section 115B concerns the taxation of profits and gains of the life insurance business. Taxation of policyholder receipts is governed by separate provisions, depending on the policy and facts.

Does the 12.5% rate apply to all income of a life insurer?

Not necessarily. Section 115B expressly separates life insurance business profits from other income, which is taxed according to the provisions applicable to that income.

Is the social security fund deposit rule still a current requirement?

No general current-year obligation arises from the historical section 115B(2) requirement, which specifically refers to assessment years 1989-90 and 1990-91.

9. Official legal references

This article provides general legal information. Apply the law, amendments and notifications relevant to the particular tax year and taxpayer.