CBIC clarifies on taxability of salvage value in motor insurance claims

The GST (Goods and Services Tax) council has clarified the taxability of wreck and salvage values in motor insurance claims, stating that general insurers have to pay GST liability in case of disposal or sale of the salvage after settling the claims.

Salvage value refers to the value of damaged or destroyed property that can be recovered and sold after an insurance claim has been settled. This clarification came in response to requests from industry players seeking clarity on salvage value.

There have been representations from stakeholders seeking clarification as to whether, in the case of motor vehicle insurance, GST is payable by the insurance company on salvage or wreckage value earmarked in the claim assessment of the damage caused to the motor vehicle.

The tax authorities explained that in situations where the insurance contract provides for the settlement of claims on full Insured’s Declared Value (IDV) without deducting salvage or wreckage value, the property will belong to the insurance company.

In such a case, since the insurance company has to dispose of the property, the outward GST liability on disposal or sale of the salvage is to be discharged by the insurance companies.

However, in situations where the general insurance companies are deducting the value of salvage as deductibles from the claim amount, the property belongs to the insured and insurance companies are not liable to discharge GST liability on the same.

Insurance companies, which are engaged in providing general insurance services in respect of the insurance of motor vehicles, insure the cost of repairs or damages of motor vehicles incurred by the policyholders.