This circular provides clarification on the GST applicability in cases where an insurance company deducts the value of salvage or wreck while settling motor vehicle insurance claims.

It explains that when an insurance company settles a claim by deducting the salvage value from the Insured’s Declared Value (IDV), ownership of the wreck remains with the insured. In such cases, there is no supply of goods by the insurance company and therefore no GST liability arises on the insurer in respect of the salvage value.

However, if the insurance contract provides for settlement of the full IDV without deduction of salvage value, the wreck or salvage becomes the property of the insurance company. In such situations, when the insurance company disposes of or sells the salvage, it is considered a taxable outward supply, and the insurer is liable to discharge GST on that transaction.