Actionable Claim Under GST & TPA: Meaning, Types, and Examples. In the complex world of Indian law, “actionable claims” play a crucial role in areas like taxation and business transactions. This blog delves into actionable claims concerning the Goods and Services Tax (GST) and the Transfer of Property Act (TPA). Let’s first understand what actionable claims are, with some illustrative examples. GST Registration
What is an Actionable Claim under GST?
An actionable claim in the context of GST refers to a claim to any debt, whether secured or unsecured, excluding lottery, betting, and gambling. GST treats actionable claims differently from other goods and services, having significant business implications.
Examples of Actionable Claims
- Outstanding Invoices: When a business provides goods or services but has not received payment, the unpaid invoice represents an actionable claim for the supplier, subject to GST.
- Bank Loans: When a bank lends money, it creates an actionable claim in the form of a debt. Interest charged on this debt is also subject to GST.
- Life Insurance Policies: A life insurance policy assures the beneficiary of a sum of money upon the policyholder’s death or under other clauses, representing an actionable claim.
- Promissory Notes: Under the Transfer of Property Act, a promissory note is an actionable claim, as it assures the payment of a sum of money. GST Filing.
Types of Actionable Claims
Actionable claims represent a legal right to demand something from another party, often involving monetary compensation. These claims can be broadly categorized into two types:
- Secured Actionable ClaimsSecured actionable claims are backed by security or collateral. These claims have assets or property attached that can be seized or liquidated if the debtor fails to repay. Examples include:
- Mortgages: If you mortgage your property, the lender has a secured actionable claim against it. If you cannot repay, the lender can liquidate the property to recover the debt.
- Auto Loans: Similar to mortgages, auto loans are restricted to vehicles. If you fail to repay, the lender can seize the vehicle.
- Secured Business Loans: Businesses can borrow loans using various assets as collateral. If the business fails to meet its repayment obligations, the lender can seize or sell the assets.
- Unsecured Actionable ClaimsUnsecured actionable claims do not have specific collateral attached. They rely solely on the debtor’s promise to repay. Examples include:
- Credit Card Debt: Credit card companies offer credit based on your credit score without collateral. If you fail to pay, your creditworthiness is affected.
- Personal Loans: Similar to credit card debts, personal loans are unsecured and depend on your repayment history and financial stability.
- Trade Credit: In business, suppliers extend trade credit to customers, expecting payment later. This is an unsecured actionable claim.
Modes to Transfer Actionable Claims
Actionable claims can be transferred in two ways:
- By Assignment: The claimant transfers their rights in the actionable claim to another party, who becomes the new claimant.
- By Negotiation: This involves the negotiation of a negotiable instrument like a promissory note, where the claim is transferred to the new holder through endorsement.
GST Scope and Treatment of Transfer of Actionable Claims
Actionable claims are considered “goods” under the CGST Act but have special rules. GST is only charged when these claims are transferred, sold, or given away for a price. This means that GST is not charged on the debt itself but on the supply of the right to recover the debt. This treatment aligns with the idea that actionable claims are neither a supply of goods nor services as per Schedule III of the CGST Act.
Meaning of Actionable Claim under Other Laws (TPA)
Apart from GST, actionable claims hold significance under the Transfer of Property Act (TPA). An actionable claim in TPA is a claim to any debt or beneficial interest in movable property that can be enforced by legal action. According to Section 3 of the TPA, an actionable claim means:
- A claim to any debt that is not secured by a mortgage of immovable property or a pledge of movable property.
- A beneficial interest in movable property not in the possession of the claimant, either actually or constructively.
Transfer of Actionable Claims Under GST vs. TPA
The transfer of actionable claims under GST and TPA follows different legal and tax procedures. GST governs the tax implications of such transfers, while TPA provides the legal framework for transferring actionable claims. Understanding the nuances of both systems is essential when dealing with actionable claims in various transactions.
What Are Non-Actionable Claims with Examples?
Non-actionable claims are those that do not qualify as actionable under relevant laws. An example is winning a lottery, which is excluded from the definition of actionable claims under GST.
Conclusion
Actionable claims are vital in Indian law, influencing taxation and property transfers. Understanding their nuances under the GST regime and the Transfer of Property Act is crucial for businesses and individuals, as these laws can significantly impact financial transactions and legal rights.
Frequently Asked Questions
Q1: Are actionable claims always subject to GST?
No, actionable claims are subject to GST only when transferred for consideration. Unconditional gifts or gratuitous transfers are generally not subject to GST.
Q2: Can you give an example of a non-actionable claim?
Winnings from a lottery or bets placed on gambling are considered non-actionable claims and are not subject to GST.
Q3: Under GST, what is the tax rate on the transfer of actionable claims?
The tax rate on the transfer of actionable claims under GST depends on various factors, including whether the transaction qualifies as a taxable supply and the applicable GST rate for the specific type of actionable claim.