Clarification on Taxability of Salvage/Wreck Value: Key Insights from Circular No. 215/9/2024-GST
<h3>1. <strong>Categories of Motor Vehicle Damage</strong></h3><p><span>The circular categorizes motor vehicle damage into two types:</span></p><ul><li><span>Total Loss/Constructive Total Loss (Cash Loss)</span></li><li><span>Partial Loss</span></li></ul><h3>2. <strong>Taxability of Salvage/Wreck Value</strong></h3><p><span>The circular addresses the issue of GST applicability on salvage/wreck value:</span></p><ul><li><span><strong>Total Loss/Constructive Total Loss:</strong> When an insurance company settles a claim by deducting the value of salvage/wreckage from the claim amount, the salvage remains the property of the insured. Therefore, the insurance company is not liable to pay GST on the salvage value.</span></li><li><span><strong>Settlement on Full IDV:</strong> If the insurance contract stipulates settlement on the full Insured's Declared Value (IDV) without deduction of salvage value, the salvage becomes the property of the insurance company after the full claim is settled. In such cases, the insurance company must discharge GST liability on the disposal/sale of the salvage.</span></li></ul><h3>3. <strong>Understanding 'Supply' Under GST</strong></h3><p><span>The circular clarifies the concept of 'supply' under section 7 of the CGST Act:</span></p><ul><li><span>'Supply' refers to all forms of supply of goods or services made for a consideration in the course of business.</span></li><li><span>In the case of motor vehicle insurance, the consideration is the premium charged by the insurance company for providing insurance services.</span></li><li><span>The deduction of salvage value from the claim amount, as per the insurance contract, is not considered as consideration for any supply made by the insurance company.</span> <a href="https://cms.plasament.com/storage/shubham-pathak/circular-no-215-09-2024.pdf">circular-no-215-09-2024</a><br> </li></ul>