Rule 330 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 330 of the Income-tax Rules, 2026 caps a non-life insurer's reserve for unexpired risks at 100% of net premium income for marine and for fire or engineering covering terrorism risks, and at 50% for other fire and miscellaneous insurance.
What the rule limits
Sub-rule (1) of rule 330: in computing the profits and gains of 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 to the Act — shall not exceed the limits below. The 1962 parallel is rule 6E.
An unexpired risks reserve is the insurer's provision for the portion of premium relating to cover that runs past the year end. It is a genuine liability, but its size is a matter of judgment, so the rule fixes ceilings for tax purposes.
The three ceilings
| Clause | Class of insurance business | Limit |
|---|---|---|
| (a) | Fire insurance or engineering insurance that covers terrorism risks | 100% of the net premium income of such business of the tax year |
| (b) | Fire insurance or miscellaneous insurance, other than those in clause (a) | 50% of the net premium income of such business of the tax year |
| (c) | Marine insurance | 100% of the net premium income of such business of the tax year |
Rule 330(1) splits fire insurance across clauses (a) and (b), and the dividing line is whether the business covers terrorism risks. Fire cover that includes terrorism attracts the 100% reserve; fire cover that does not is limited to 50%. The same split applies to engineering insurance, which appears in clause (a) only when it covers terrorism, and otherwise falls into clause (b) as miscellaneous insurance. The reason is exposure: terrorism losses are severe, correlated and hard to predict, so a full year's net premium may reasonably be held in reserve. The consequence for an insurer is that the premium ledger has to distinguish terrorism-covering business within each class — a limit computed on undifferentiated fire premium will be wrong in one direction or the other.
Marine insurance takes the full 100% without any qualification, and sub-rule (3)(a) extends it: "marine insurance" includes the Export Credit Insurance. That inclusion is not obvious from the ordinary meaning of the words, and it matters — export credit business is thereby entitled to the 100% ceiling rather than the 50% that would apply if it were treated as miscellaneous insurance.
Net premium income
Sub-rule (3)(b): "net premium income" refers to the premium amount received as reduced by the reinsurance premium paid during the relevant tax year.
The definition ties the reserve to retained exposure. Premium received is reduced by reinsurance premium paid in the same tax year, so an insurer that cedes most of a large fire account to reinsurers has a small net premium income for that class and correspondingly a small permitted reserve. That is the right answer economically — the unexpired risk it carries is small too. Two points of precision: the reduction is for reinsurance premium paid during the relevant tax year, and the computation is per class of business, since each ceiling in sub-rule (1) is expressed on "the net premium income of such business".
What happens to a disallowed amount
Sub-rule (2): any amount carried over to such reserve or additional reserve which is not allowed as a deduction under this rule in respect of a 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 is credited.
This prevents the excess being taxed twice. The amount was disallowed when set aside; when it is written back to the revenue account in the following year it is excluded from total income rather than taxed again as a credit. An insurer that disallows an excess reserve and then also offers the write-back to tax has paid tax on the same amount twice.
Worked example
| Facts | Position under rule 330 |
|---|---|
| Fire policies covering terrorism; net premium Rs 40 crore | Reserve up to Rs 40 crore — clause (a) |
| Ordinary fire policies; net premium Rs 40 crore | Reserve up to Rs 20 crore — clause (b) |
| Engineering policies covering terrorism | 100% — clause (a) |
| Engineering policies without terrorism cover | 50% as miscellaneous insurance |
| Marine hull and cargo business | 100% — clause (c) |
| Export Credit Insurance treated as miscellaneous | Wrong — sub-rule (3)(a) puts it in marine, at 100% |
| Gross premium Rs 100 crore; reinsurance ceded Rs 70 crore | Net premium income is Rs 30 crore |
| Limit computed on gross premium | Overstated — the base is net of reinsurance paid |
| Fire premium not split between terrorism and non-terrorism | The limit cannot be computed correctly |
| Excess reserve disallowed, then written back and offered to tax | Double taxation — sub-rule (2) excludes the write-back |
Compliance checklist
- Confirm the business is insurance other than life insurance before applying rule 330.
- Include any additional reserve under paragraph 4(1)(d) of Schedule XIV in the amount tested.
- Split fire and engineering premium between business that covers terrorism risks and business that does not.
- Apply 100% to terrorism-covering fire and engineering, and to marine.
- Apply 50% to other fire and to miscellaneous insurance.
- Treat Export Credit Insurance as marine.
- Compute net premium income per class, reducing premium received by reinsurance premium paid in the year.
- Exclude a disallowed amount from total income when it is written back the following year.
Common mistakes
- Applying one ceiling to all fire business without splitting terrorism cover.
- Classifying Export Credit Insurance outside marine.
- Computing the limit on gross premium.
- Reducing by reinsurance recoveries rather than reinsurance premium paid.
- Testing the reserve in aggregate rather than class by class.
- Taxing the write-back of a previously disallowed reserve.
Which year this governs
The Income-tax Rules, 2026 are made under the Income-tax Act, 2025. The 1962 parallel to rule 330 is rule 6E, given for tracing only. Verify the current text and Schedule XIV before computing a reserve.