The GST (Goods and Services Tax) council has provided clarification on the taxability of wreck and salvage values in motor insurance claims. It has stated that general insurers are liable to pay GST on the disposal or sale of the salvage after settling the claims.
Salvage value is directed to the value of the damaged or destroyed property that can recovered and sold post-settling of an insurance claim. The same clarification arrived in answer to requests from the industry players asking for transparency on the salvage value.
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Stakeholders have asked for clarification about whether insurance companies need to pay GST on the salvage or wreckage value included in the claim assessment for motor vehicle damage.
The tax authorities explained that if the insurance contract settles claims on the full Insured’s Declared Value (IDV) without deducting salvage or wreckage value, the property will belong to the insurance company.
In the same matter as the insurance company needs to dispose of the property the outwards GST obligation for the disposal or sale of the salvage is needed to get released via the insurance companies.
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However, if general insurance companies deduct the salvage value from the claim amount as deductibles, the property still belongs to the insured, and insurance companies are not liable for discharging GST on the salvage value.
Insurance companies provide general insurance services for motor vehicles, covering the cost of repairs or damages incurred by policyholders.