Home > Automotive > Service tax and paint depreciation on motor insurance claims.

Service tax and paint depreciation on motor insurance claims.

After the hike in petrol prices and duty on new cars here comes another hit for motor owners. General Insurance Council has ordered depreciation on painting charges in case of insurance claims. Although the principle of indemnity is maintained to some extent on spares and other material cost payable by way of deduction on account of deprecation. Yet the insurance companies have been facing difficulties in applying this principle on paint material which is akin to a part replaced. This has been primarily due to total painting cost being invoiced as labour charges by most workshops even though VAT is paid while buying the paint material. This lack of bifurcation in paint material and labour charges has given rise to different practices followed by repairer and surveyors. This confusion and misinterpretation leads to customer service issues. Therefore in order to ensure complete transparency, uniformity and avoid confusion, the General Insurance Council have refereed the state regulations on VAT and have adopted them as a base for the following guidelines in respect of paint material and labour charges.

1. Where the dealers are unable to bifurcate the painting charges they should follow the guidelines for bifurcation of painting charges laid by respective state government under the VAT rules and accordingly bifurcate the paint material and labour in specified ratio. (i.e 80%:20%)

2. Few states where the guidelines is not clear, standard practice of material to labour ratio @ 70%:30% respectively will be followed.

It has been agreed by all insurers to implement the in all claims of losses occurring after 1st April 2012.

Note :
50% depreciation is applied on plastic and fiber parts from day one.
No depreciation on metal parts for first six months, 5% after that for every six months up to 50%.
No depreciation on glass.

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Categories: Automotive
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