Summary of Circular No-217/11/2024-GST

The clarification on the entitlement of Input Tax Credit (ITC) by insurance companies on the expenses incurred for the repair of motor vehicles in reimbursement mode of insurance claim settlement is summarized as follows:

1. ITC Availability for Repair Expenses in Reimbursement Mode

a. General Principle:

  • Insurance companies are engaged in providing general insurance services and settle claims either in a cashless mode or reimbursement mode.
  • In both modes, the insurance company accounts for repair liability and is responsible for making payment of the approved repair charges​​.

b. ITC in Reimbursement Mode:

  • Reimbursement Process: In reimbursement mode, the insured first pays for the repair services to a non-network garage and then gets reimbursed by the insurance company to the extent of the approved repair/claim cost​​.
  • Invoices and Payments: The invoices are generally issued in the name of the insurance company, and the liability to pay for the repair services lies with the insurance company, making them the recipient as per section 2(93) of the CGST Act​​.
  • Section 17(5) of CGST Act: ITC on repair services is allowed when received by a taxable person engaged in the supply of general insurance services in respect of motor vehicles insured by them​​.

2. Extent of ITC Availability

a. Approved Claim Cost:

  • If the garage issues two separate invoices (one for the insurance company for the approved claim cost and another for the insured for any excess amount), ITC is available only on the invoice issued to the insurance company​​.
  • If a single invoice is issued for the full amount and the insurance company reimburses only the approved claim cost, ITC is available only to the extent of the reimbursement made by the insurance company​​.

3. Conditions for ITC Entitlement

a. Invoice in Insurance Company’s Name:

  • ITC is available only when the invoice for the repair services is in the name of the insurance company. If the invoice is in the name of the insured, ITC is not available to the insurance company​​.

Conclusion

The circular clarifies that ITC is available to insurance companies for motor vehicle repair expenses incurred in reimbursement mode, provided the invoices are issued in the name of the insurance company and the ITC is claimed only for the amount reimbursed to the insured.