Summary of the GST Liability on Salvage or wreckage in Motor Vehicle Insurance Claims
The Circular No 215/9/2024 provides clarification regarding GST Liability on Salvage or wreckage in Motor Vehicle Insurance Claims. The Insurance companies provides general insurance for motor vehicles covers the cost of repairs or damages. These damages are generally of two categories.
1. Total Loss (also known as cash loss):
When the vehicle either completly destroyed or damaged beyond repair and the cost to repair is higher than its actual value. In such cases, the insurance company pays the policy holder the value of vehicle instead of fixing it.
2. Partial Loss
when vehicle is damaged but can still be repaired, in such case the insurance company covers the cost of repairs.
Question raised in the Circular
Does the insurance company need to pay GST on salvage or wreck value when they earmark or estimate it during the claim assessment?
Clarification:
- If vehicle is total loss, the salvage remains with insured person, even though the insurance company deducts its value from the claim. The insurance company does not own the salvage or wreckage.
- The vehicle owner can sell the salvage or wreckage to buyer, either through help from insurance company or by his own.
- Since the insurance company does not actually own the salvage and is not selling it,there is no supply of goods or services by the insurance company in this situation. Because there is no supply, there is no GST liability for insurance company on the value of the salvage or wreckage.
In some case the policyholder gets the full amount for their damaged vehicle and the insurance company takes the ownership of salvage. When insurance company own and sell the salvage, this sale become a supply under GST.The Insurance company must chagrge GST on the amount they receive from selling the salvage.
Conclusion of the Circular:
- If insurance company does not deduct the salvage value and pays you the full claim amount, they take ownership of wreckage and are responsible for paying GST on its sale.
- If insurance company deducts the salvage value from the claim, the wreckage stays with you, the vehicle owner, and the insurance company does not have to pay GST on it.
