Summary of Circular No 215/09/2024-GST
The clarification on the taxability of salvage/wreck value in motor vehicle insurance claims is provided by the Board under Section 168(1) of the CGST Act. The key points are summarized as follows:
- Definition of Supply: For GST liability to arise, there must be a “supply” as defined under Section 7 of the CGST Act, which means all forms of supply of goods or services made for consideration in the course of business.
- Insurance Services and Claim Settlements:
- Insurance companies charge a premium for insuring vehicles against damages.
- The insurance company is responsible for either repairing the damaged vehicle or compensating the insured.
- Total Loss/Constructive Total Loss:
- If the insurance company deducts the salvage value from the claim settlement amount (as per the policy contract), the ownership of the wreckage remains with the insured. In such cases, no supply of salvage occurs from the insurance company to the insured, and hence, no GST liability arises on the part of the insurance company for the salvage value.
- If the claim is settled for the full Insured’s Declared Value (IDV) without any deduction for salvage value, the salvage becomes the property of the insurance company. The company then must discharge GST on the disposal/sale of the salvage.
- Conclusion:
- When the salvage value is deducted from the claim, the insurance company is not liable for GST on the salvage.
- When the salvage value is not deducted, and the full IDV is paid, the insurance company must discharge GST on the sale of the salvage.
The clarification aims to ensure uniformity in the implementation of GST provisions across field formations.