Summary of ITC on Vehicle repair expense to insurance company in Claim reimbursement
The Insurance Company insures the cost of repairs/damages of motor vehicles and settles the claims in two ways.
(i) Cashless Mode:- The Insurance company pay the garage directly for the repair work. The Garage issues the invoice in the insurance Company’s name and the insurance company can claim the ITC on the GST paid on the repair service.
(ii) Reimbursement Mode: In this case, the Car owner pays the repair cost and then the insurance company reimburses the car owner for the amount they approve. The invoice will be issued in the insurance company’s name.
Tax authorities are objecting the insurance companies claiming the ITC in case of reimbursement, where the car owner pays the repair cost. Therefore they say that repair service was provided to the car owner not the insurance company hence, ITC should not be allowed to Insurance Comapny eventhough the invoice is in the Comapny’s name.
Hence CBIC has issued Clarification related whether the insurance comapny can claim Input tax Credit for repairs in case of Reimbursement of Cost.
Issue.1 Whether ITC is available to insurance comapnies in respect of repair expenses reimbursed by the insurance company in case of reimbursement mode of claim settlement.
Clarification: In the Reimbursement case the owner first pay the repair cost at garage and then insurance company reimburses the owner for the approved amount. Even though the owner intially pays at garage, the insurance company is still considered as Recipient for repair service as ultimately it bears the liability for the payment. As per section 17(5) of CGST Act insurance company can claim the ITC for repair service in case of reimbursement of repair cost.
Issue.2 Where the invoice raised by the garage also includes an amount in excess of the approved claim cost, the insurance company only reimburses the approved claim cost to the garage after considering the standard deductions viz. the compulsory deductibles to be borne by the insured, depreciation,improvements outside the coverage, value of salvage of the damaged parts of the motor vehicles, etc. The remaining amount is to be paid by the insured to the garage. What is the extent of ITC available to the insurer in such cases?
Clarification: When one invoice is issued to the insurance comapny for approved claim amount and another is issued to customer for additional repair costs not covered under claim, in such case the insurance comapny can claim the ITC on invoice issued for the reimbursement amount.
When only one invoice is issued for full repair amount and if the insurance company only reimburses approved amount not the repair cost , ITC will available on the reimbursed amount not full invoice value. The Insurance Comapny’s ITC eligibilty depends on how much it reimburses.
Issue.3 Whether ITC is available to the insurer where the invoice for the repair of the vehicle is not in name of the insurance company.
Clarification: In such a case, condition of clause (a) and (aa) of section 16(2) of CGST Act is not satisfied and accordingly, input tax credit will not be available to the insurance company in respect of such an invoice.
