Applicability of TDS on payment made by Insurance Company to Motor garadges (Cashless Claim)

[Sandeep Kumar]

Clarification is needed that whether insurance companies need to deduct TDS out of payment made to Motor garages specifically in respect of Cashless claim ?

[YAGAY andSUN]

The issue of taxation in case of compensation for motor accident depends on the question whether the receipt is Capital or Revenue receipt in the hand of recipient. If the person who has been given any compensation for motor accident or any accident , is permanently disabled because of accident , such receipt is considered as Capital receipt which is not taxable. Whereas , if the disablement is temporary, payment of claim in that case is taxable.

The case law related to the issue is Vinod Kumar. vs Income-Tax Officer 32 ITD 254 , ITAT Chandigarh = 1989 (9) TMI 149 - ITAT CHANDIGARH in Para 13 has held that –

“assessee in all fairness and in a bona fide manner based upon in actual happenings in life made disclosure of the amount of ₹ 34,143 received from the insurance company for temporary disablement proved by necessary documents. This amount was, on the facts of the case, capital receipt and not taxable and includible in the total income of the assessee. The Income-tax Officer, therefore, reached a correct conclusion that the amount was not includible in the total income of the assessee. His order could not be said to be erroneous as well as prejudicial to the interest of revenue within the ambit of Section 263 of the Act. We, therefore, cancel the order of the Commissioner under appeal before us.”

Therefore, compensation received due to an accident can be taxable if there is no disablement and shall be tax free if there is permanent or temporary disablement ( tax free amount will be proportionate to temporary disablement )

[Sandeep Kumar]

My point is that whether insurance companies are liable to deduct TDS from the payment made to Authorized work station (Motor workshop Co.) in respect of cashless claims where insurance companies doesn't pay insurance claim directly to insured person but payment is being made to Authorized work station (Motor workshop Co.).

AI Summary

TDS on insurer payments may turn on whether the payment is compensatory capital or taxable revenue in nature. Whether insurers must deduct TDS on cashless payments to authorized motor garages depends on the tax character of the payment to the recipient: compensation giving rise to permanent or temporary disablement is treated as a capital receipt and not taxable, whereas payments absent disablement are taxable. A tribunal decision held temporary disablement compensation to be a capital receipt not includible in income. Thus insurer TDS liability on payments routed to garages requires assessment of whether the specific payment is taxable or capital in nature.