In cases, where the insurance claim is settled on full claim amount, without deduction of value of salvage/ wreckage (as per the terms of the contract), the salvage becomes the property of the insurance company and the insurance company will be obligated to discharge GST on supply of salvage to the salvage buyer
Input tax credit (ITC) is available to general insurance companies for motor vehicle repair expenses incurred by them in case of reimbursement mode of claim settlement
New Delhi: On the basis of the decisions of 53rd GST Council, the GST(Goods and Services Tax) authorities now have issued further clarifications on Wednesday that the general insurers have to pay outward GST liability on disposal/sale of the salvage by them after settling any motor insurance claims.
Sanjay Mangal, principal commissioner (GST), in two detailed circulars issued on Wednesday, has explained the modus operandi of GST payment on motor salvage and on the procedures for availing input tax credit(ITC) by general insurers.
Representations have been received from the trade and field formations seeking clarification as to whether in case of motor vehicle insurance, GST is payable by the insurance company on salvage/ wreckage value earmarked in the claim assessment of the damage caused to the motor vehicle, said GST authorities.
Availing Input Tax Credit
GST authorities have clarified that ITC is available to general insurance companies for motor vehicle repair expenses incurred by them only in case of reimbursement mode of claim settlement and not through cashless.
In cases where the garage issues two separate invoices in respect of the repair services, one to the insurance company in respect of approved claim cost and second to the customer for the amount of repair service in excess of the approved claim cost, ITC will be available to the insurance company on the invoice issued to the insurance company subject to reimbursement of said amount by insurance company to the customers.
However, if the invoice for full amount for repair services is issued to the insurance company while the insurance company makes reimbursement to the insured only for the approved claim cost, then, the ITC can be available to the insurance company only to the extent of reimbursement of the approved claim cost to the insured, and not on the full invoice value.
The ITC will not be available to the insurance company in respect of such an invoice, where the invoice for the repair of the vehicle is not in name of the insurance company
Payment of GST on salvage sale
The new GST circular has said in situations where the insurance contract provides for settlement of claim on full Insured’s Declared Value(IDV), without deduction of value of salvage/ wreck, the insured will be paid for full claim amount without any deductions on account of salvage value.
In such a situation, the salvage becomes the property of insurance company after settling the claim for the full amount and the insurance company is obligated to deal with the same or dispose of the same. In such cases, the outward GST liability on disposal/sale of the salvage is to be discharged by the insurance companies, explained Mangal.
Non-payment of GST on Salvage
Otherwise, in cases, where due to the conditions mentioned in the contract itself, general insurance companies are deducting the value of salvage as deductibles from the claim amount, the salvage remains the property of insured and insurance companies are not liable to discharge GST liability on the same.
However, in cases, where the insurance claim is settled on full claim amount, without deduction of value of salvage/ wreckage (as per the terms of the contract), the salvage becomes the property of the insurance company and the insurance company will be obligated to to discharge GST on supply of salvage to the salvage buyer.
Insurance companies, which are engaged in providing general insurance services in respect of insurance of motor vehicles, insure the cost of repairs/ damages of motor vehicles incurred by the policyholders. Such damages to the insured vehicle are classified in two categories:
– Total Loss/ Constructive Total Loss or Cash Loss; and
– Partial Loss Situation