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

Debate on TDS Deduction for Insurance Payments to Garages: Capital vs. Revenue Receipts for Taxability A discussion on whether insurance companies need to deduct Tax Deducted at Source (TDS) on payments made to motor garages for cashless claims. One reply highlights that the taxability of compensation depends on whether the receipt is capital or revenue. If compensation is for permanent disablement, it is considered a capital receipt and not taxable. However, if the disablement is temporary, the claim is taxable. Another query raises whether TDS should be deducted when payments are made directly to motor workshops instead of the insured individual.