Draft Income Tax Rules 327 and 230: Fund Approval Application, Rule Amendments, Appeals, and Limits on Unexpired Risk Reserves
Rules 327 to 330 of the Draft Income-tax Rules, 2026 prescribe procedural requirements for approval and regulation of gratuity funds while also setting limits on reserves for unexpired risks in insurance businesses. Rule 327 requires that an application for approval of a gratuity fund, as provided under Part B of Schedule XI, must be submitted in Form No. 188 and verified in the prescribed manner. Rule 328 stipulates that no changes to the rules, constitution, objectives, or conditions of an approved gratuity fund can be made without obtaining prior approval from the approving authority, ensuring regulatory control over fund governance. Rule 329 provides that appeals under Part B of Schedule XI must be filed in Form No. 187, duly verified and accompanied by a fee of ₹1,000. Rule 330 lays down limits on the reserve for unexpired risks when computing profits and gains of insurance businesses other than life insurance. The permissible reserve cannot exceed 100% of net premium income for fire insurance or engineering insurance covering terrorism risks and marine insurance (including export credit insurance), while for other fire and miscellaneous insurance businesses the limit is restricted to 50% of the net premium income of the relevant tax year. Net premium income is defined as the premium received minus reinsurance premium paid during the year. Additionally, any portion of reserve not allowed as a deduction in a tax year will not be included in total income in the immediately succeeding tax year when credited to the relevant revenue account. These provisions aim to ensure regulatory oversight, standardised procedures, and accurate computation of taxable profits.
Extract of Rules No. 327, 328 and 329, 230, of Draft Income-tax Rules, 2026
Rule 327
Application for approval.
The application for approval of a gratuity fund is required to be furnished under paragraph 4(1) of Part B of Schedule XI shall be made in Form No. 188 and shall be verified in the manner indicated therein.
Rule 328
Amendment of rules, etc., of fund.
No alteration in the rules, constitution, objects or conditions of an approved fund shall be made without the prior approval of the approving authority.
Rule 329
Appeal
An appeal under paragraph 9(1) of Part B of Schedule XI shall be made in Form No. 187 and shall be verified in the manner indicated therein and shall be accompanied by a fee of Rs 1000.
Rule 330
Limits of reserve for unexpired risks.
(1) In the computation of profits and gains for any insurance business other than life insurance, the amount carried over to a reserve for unexpired risks, including any amount carried over to any such additional reserve eligible for deduction under paragraph 4(1)(d) of Schedule XIV of the Act, shall not exceed:
(a) where the insurance business relates to fire insurance or engineering insurance that covers terrorism risks, 100% of the net premium income of such business of the tax year;
(b) where the insurance business relates to fire insurance or miscellaneous insurance, other than those mentioned in clause (a), 50% of the net premium income of such business of the tax year;
(c) where the insurance business relates to marine insurance, 100% of the net premium income of such business of the tax year.
(2) Any amount out of the amount carried over to such reserve or additional reserve which is not allowed as a deduction under this rule in respect of any tax year shall not be included in the total income for the immediately succeeding tax year in the revenue account relating to which the amount aforesaid is credited.
(3) In this rule- :
(a) “net premium income” refers to the premium amount received as reduced by the reinsurance premium paid during the relevant tax year;
(b) “marine insurance” includes the Export Credit Insurance.
