GST in case of Vehicle Insurance companies

Regardless of how frequently their vehicles are used, every automobile and two-wheeler owner must budget for a few recurrent costs. Motor vehicle insurance is one of them. Motor vehicle insurance costs have risen in recent years. Many blame the hike to higher GST rates. There should also be more clarification on the application of GST to motor vehicle insurance claims.

Is GST applicable to vehicle insurance premiums?

An insurance premium is the amount paid by the person for availing of an insurance policy. In GST, Insurance is a service. Since its introduction in 2017, GST has replaced service tax. The latest GST rate on motor vehicle insurance coverage is 18%.

For example, Mr. A bought a brand new car for Rs. 6,00,000. He purchased vehicle insurance for which the insurance premium – base amount is Rs. 15,000. He has to finally pay Rs. 15,000 plus Rs. 2700 (18% GST on 15000) i.e. total Rs. 17700.

Is ITC available for GST on motor vehicle insurance premiums?

As per clause (ab) of Section 17(5) of the CGST Act, 2017, GST on services of general insurance, servicing, repair, and maintenance in so far as they relate to motor vehicles up to 13 seating capacity is blocked credit. Therefore, ITC on such Vehicle Insurance premiums cannot be claimed.

However, if the motor vehicle has more than 13 seater approved capacity, ITC can be claimed.

Also, if a motor vehicle up to 13 seater capacity is used in the business of further supply of such motor vehicles or transporting passengers or imparting training on driving such motor vehicles, ITC can be claimed.

Does GST apply on the Vehicle Insurance claims received?

When you request reimbursement from your insurance provider for losses covered by your insurance policy, it is considered an insurance claim. If your claim is approved, you will receive reimbursement for the expenses incurred due to vehicle damage. These claims are considered actionable claims under the GST Act. According to Schedule III of the CGST Act, 2017, actionable claims cannot be considered as a sale of goods or services. Therefore, vehicle insurance claims received are not subject to GST.

Is GST applicable on salvage value claims under Vehicle Insurance?

Salvage value, as used in motor vehicle insurance means the value an insurer can recover from selling a completely damaged or destroyed vehicle while settling the insurance claim on the vehicle.

In its most recent circular no.-215/9/2024-GST, dated June 26, 2024, the Central Board of Indirect Taxes and Customs (CBIC) provided clarification regarding the taxability of salvage/wreck value indicated in the claim assessment of the damage caused to the motor vehicle.

The insurance company can settle the claim in two different ways.

1.  The insurance company can transfer the claimed value to policyholder account without deducting the salvage value of the damaged vehicle and take possession of the vehicle car. It makes the damaged vehicle the insurer’s property.

2.  Alternatively, the insurance company can transfer the claimed amount to policyholder after deducting the salvage value of the vehicle, and settle the claim. In this situation, the ownership of the damaged or destroyed vehicle remains with the insured or policyholder.

The applicability of GST on salvage value in motor insurance claims will differ depending on the claim settlement process.

• Suppose the insurance company takes possession of the vehicle and disposes of it later. In that case, it will need to bear the outward GST on the salvage value.
• Suppose the insurance company settles the claim after deducting the salvage value. In that case, the insurance company will not have any GST implications for the salvage value.