Actionable Claim Under GST & TPA: Meaning, Types, Examples

In the complicated world of Indian law, "actionable claims" are a big deal. They matter a lot in things like taxes and business deals. This blog will explore actionable claims related to the Goods and Services Tax (GST) and the Transfer of Property Act (TPA). First, let's see what actionable claims are with two examples.

What is an Actionable Claim under GST?

In the context of GST, an actionable claim refers to a claim to any debt, whether secured or unsecured, excluding lottery, betting, and gambling. GST treats actionable claims differently than other goods and services, with significant business implications.

Examples of Actionable Claims

1. Outstanding Invoices: Consider a scenario where a business has provided goods or services to a customer but has not yet received payment. The unpaid invoice represents an actionable claim for the supplier, subject to GST.

2. Bank Loans: When a bank lends money to a borrower, it creates an actionable claim in the form of a debt. Interest charged on this debt is also subject to GST.

3. Life Insurance Policies: An insurance policy is an actionable claim in the realm of insurance. In life insurance, upon the policyholder’s death or on other clauses, it assures the beneficiary of a sum of money. 

4. General Insurance Policies: General insurance is an agreement between a policyholder and insurer wherein the insurance company protects your valuable assets like vehicle from fire, theft, burglary, or any other unfortunate accident in exchange for payment of an insurance premium.

5. Promissory Notes: A promissory note, under the Transfer of Property Act, is an actionable claim, as it assures to pay you a sum of money. 

Types of Actionable Claims

An actionable claim represents a legal right to demand something from another party, often involving monetary compensation. These claims can be broadly categorised into two primary types: Secured Actionable Claims and Unsecured Actionable Claims. Each type has its unique characteristics, implications, and legal standing. 

1. Secured Actionable Claims

Secured Actionable Claims are claims that are backed by a security or collateral. To explain it better, these claims have some assets or property attached to them that can be seized or liquidated if the debtor fails. The creditor gets a high level of security in these actionable claims.

Here are a few common examples of Secured Actionable Claims:

Mortgages: If you mortgage your property, the lender, commonly a bank, has a secured actionable claim against your property. If you cannot pay, the lender can liquidate your property by selling it to recover the outstanding debt. 

Auto Loans: Auto loans are similar to mortgages but are restricted to vehicles only. If you cannot pay the debt, the lender can seize the car to cover the incurring debt. 

Secured Business Loans: If you are doing business, you can borrow a loan using various assets. The lender can seize or sell the assets if any business fails to meet its repayment obligations. 

2. Unsecured Actionable Claims

In contrast to Secured Actionable Claims, unsecured actionable claims do not have any specific collateral attached to them. These claims are based solely on the debtor's promise to repay the creditor. While they offer less security to the creditor than secured claims, they are common in various financial transactions and contracts. Here are a few examples of unsecured actionable claims:

Credit Card Debt: Your credit card is a big example of an unsecured actionable claim without collateral. Based on your credit score, the credit card company offers you the credit money. However, they have nothing to seize if you fail to pay the bills. Your creditworthiness is affected only. 

Personal Loans: Similar to credit card debts, personal loans are also unsecured as they don’t have any collateral. While approving the loans, the lenders offer you the credit, depending on your repayment history and financial stability. 

Trade Credit: In business, suppliers often extend trade credit to their customers. This is an unsecured actionable claim, as the supplier provides goods or services with the expectation of payment later.

Modes to Transfer Actionable Claims

Actionable claims can be transferred in two ways:

1. By Assignment: The claimant transfers their rights in the actionable claim to another party, who becomes the new claimant.

2. 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 How Are Transfer of Actionable Claims Treated

Actionable claims are considered “goods” under the CGST Act but have some special rules. They are only taxed when transferred, sold, or given away for a price. This means that GST is not charged on the debt itself but only on the supply of the right to recover the debt. This is because actionable claims are neither a supply of goods nor services as per Schedule III of the CGST Act.

GST is levied only on the supply of actionable claims when they are like supply and not on the debt itself. The tax liability arises when the claim is assigned, sold, or disposed of for consideration.

Meaning of Actionable Claim under Other Laws (TPA)

Apart from the GST framework, actionable claims also hold significance under the Transfer of Property Act (TPA). In the context of TPA, an actionable claim is a claim to any debt or beneficial interest in movable property that can be enforced by legal action.

An actionable claim is defined in the Transfer of Property Act (TPA), which deals with the transfer of properties in India. According to Section 3 of the TPA, an actionable claim means:

• A claim to any debt that is not secured by any of the following:
• Mortgage of immovable property
• Pledge of movable property
• Mortgaging of movable or immovable property
• A beneficial interest in movable property that is 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. While GST governs the tax implications of such transfers, the TPA provides the legal framework for transferring actionable claims. It's essential to understand the nuances of both systems when dealing with actionable claims in various transactions.

What Are Non-Actionable Claims with Examples

Under relevant laws, the claims that don’t qualify as actionable are non-actionable. One of the greatest examples is winning a lottery, as it is excluded from the definition of actionable claims under GST. 

Conclusion

Actionable claims are critical to Indian law, influencing everything from taxation to property transfers. Understanding their nuances under the GST regime and the Transfer of Property Act is essential 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 they are 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?

There are various factors on which the tax rate on the transfer of actionable claims under GST depends, as the transaction qualifies as a taxable supply or the applicable GST rate for the specific type of actionable claim.