This circular provides clarification on the availability of Input Tax Credit (ITC) to insurance companies in respect of expenses incurred for repair of motor vehicles under the reimbursement mode of insurance claim settlement.

It explains that even though the insured makes the initial payment to a non-network garage, since the insurance company reimburses the approved repair cost, the liability to pay consideration lies with the insurer. Hence, the insurance company qualifies as the recipient of service under Section 2(93) of the CGST Act and is eligible to avail ITC on the tax charged for such repair services.

The circular further clarifies that ITC shall be available only to the extent of the approved claim cost reimbursed by the insurer. If a garage’s invoice includes charges beyond the approved amount (like depreciation or non-covered improvements), ITC is restricted proportionately. However, ITC will not be available if the invoice for repair services is not issued in the name of the insurance company, as per Section 16(2)(a) and (aa) of the CGST Act.