Entitlement of ITC by the insurance companies on the expenses incurred for repair of motor vehicles in case of reimbursement mode of insurance claim settlement

27Jun 2024 by admin

Circular No.: 217/11/2024-GST
Date: 26th June, 2024
Subject: Entitlement of ITC by the insurance companies on the expenses incurred for repair of motor vehicles in case of reimbursement mode of insurance claim settlement

Key Points and Clarifications:

Background:

This circular addresses the eligibility of insurance companies to claim input tax credit (ITC) on the expenses incurred for the repair of motor vehicles when the insurance claims are settled through the reimbursement mode. This clarification is important for ensuring uniformity and understanding of the provisions related to ITC in the context of insurance claim settlements.

Key Provisions Involved:

  • Section 16 of the CGST Act, 2017: Pertains to eligibility and conditions for taking input tax credit.
  • Section 17(5) of the CGST Act, 2017: Lists the blocked credits where ITC is not allowed.
  • Section 168(1) of the CGST Act, 2017: Empowers the Board to issue instructions and directions to GST officers to ensure uniformity in the implementation of the Act.

Issues and Clarifications:

Issue 1: Eligibility of ITC on Repair Expenses in Reimbursement Mode of Insurance Claim Settlement

  • Concern: Whether insurance companies are entitled to claim ITC on the expenses incurred for the repair of motor vehicles when claims are settled through reimbursement mode.
  • Clarification:
    • Insurance companies are entitled to claim ITC on the expenses incurred for the repair of motor vehicles in the reimbursement mode of claim settlement.
    • This is based on the premise that the expenses are incurred in the course or furtherance of their business, and the repairs are a part of the insurance service provided to the policyholders.

Key Points from Circular:

  1. Reimbursement Mode of Claim Settlement:
    • In the reimbursement mode, the insured customer gets the motor vehicle repaired at a service center, pays for the repairs, and then gets reimbursed by the insurance company.
    • The insurance company reimburses the cost of repairs to the insured, including the GST charged by the repair service provider.
  2. Entitlement to ITC:
    • The insurance company is eligible to claim ITC on the GST component of the repair expenses reimbursed to the insured.
    • This is because the repair service is used in the course or furtherance of the insurance business, which provides taxable insurance services.
  3. Conditions for Availing ITC:
    • The repair service provider must issue a tax invoice to the insured.
    • The insured must forward this invoice to the insurance company as part of the reimbursement claim.
    • The insurance company must ensure that the GST paid on the repair services is not restricted under Section 17(5) of the CGST Act, 2017 (which lists blocked credits).
  4. Compliance Requirements:
    • Insurance companies must maintain proper documentation to substantiate the ITC claims, including the tax invoices from the repair service providers and the reimbursement claim documents.
    • Proper records should be kept to show that the repair expenses are related to the taxable insurance services provided by the company.

Tabular Summary

IssueClarification
Eligibility of ITC on repair expenses in reimbursement mode of insurance claim settlementInsurance companies are entitled to ITC on repair expenses incurred in the course or furtherance of their business when claims are settled through reimbursement mode.