CBIC Circular No. 215/9/2024-GST: Taxability of Salvage in Motor Vehicle Insurance Claims

editor — Thu, 27 Jun 2024 06:36:35 +0000

The CBIC has issued Circular No. 215/9/2024-GST dated June 26, 2024, providing clarity on the taxability of salvage or wreckage value included in claim assessments for motor vehicle damage.

Background:

The circular addresses concerns regarding whether GST is applicable on the salvage or wreckage value deducted by insurance companies during claim settlements for motor vehicle damages.

Key Clarifications:

Nature of Insurance Transactions: Insurance companies offering general insurance services for motor vehicles cover repair costs incurred by policyholders in cases of damage.
GST Liability: Under GST law, taxability hinges on the existence of a "supply" as defined in Section 7 of the CGST Act. Insurance companies charge premiums to insure vehicles against damages, which constitutes a supply.
Treatment of Salvage Value: If an insurance claim is settled based on Insured's Declared Value (IDV) minus salvage value, the ownership of the salvage remains with the insured. The deduction of salvage value from the claim settlement amount is predetermined in the insurance contract and does not qualify as consideration for a supply by the insurance company. Hence, no GST liability arises for the insurance company on this salvage value.
Full IDV Settlement: In cases where the insurance contract stipulates settlement at full IDV without deducting salvage value, the salvage becomes the property of the insurance company post-settlement. In such instances, GST liability applies when the insurance company disposes of or sells the salvage.

Conclusion:

The circular concludes that insurance companies are not liable to pay GST on salvage or wreckage value deducted from claim settlements unless the salvage becomes their property due to full IDV settlement terms.

Stakeholders are encouraged to disseminate the contents of this circular through suitable trade notices for broader understanding and compliance.

For further details, please refer to Circular No. 215/9/2024-GST dated June 26, 2024, accessible here.

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CBIC Circular No. 215/9/2024-GST: Taxability of Salvage in Motor Vehicle Insurance Claims

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