“In this world nothing can be said to be certain, except death and taxes” – this quotation attributed to Benjamin Franklin highlights the inevitability of mortality and taxation. With this article we propose to examine the present legal and tax implications of salvage. We wish to leave the conclusions to the reader’s reasoning.
Let us see how the word salvage is treated across Vehicle, Marine and Aviation insurances and what are the tax implications on Vehicle Salvage.
Accident Vehicle Salvage
Accident vehicle salvage refers to damaged vehicles, declared a “total loss” (repair cost >75% of Insured Declared Value – IDV) by insurers. Insurers acquire these vehicles after settling claims, selling them via auctions to recover value.
- When an accident occurs, a car is declared a Total Loss (TL) or Constructive Total Loss (CTL) if it is extensively damaged, often exceeding 75% or 90% of its IDV.
- Insurers subtract the salvage value from the final claim settlement if the owner keeps the damaged car, or the insurer takes the vehicle and sells it.
- The Insurance Regulatory and Development Authority of India (IRDAI) mandates that insurers must ensure the cancellation of the Registration Certificate (RC) for all total loss claims to prevent the illegal resale of damaged vehicles.
- Salvage is often disposed of through specialized auctions to authorized scrappers or buyers interested in repair. Examples of few salvage businesses: https://www.selectautomart.com/ and salvagecarz.com
- The salvage value depends on the vehicle’s age, extent of damage, and the demand for its parts, with higher damage leading to lower salvage value.
- The National Vehicle Scrappage Policy aims to safely dispose of these vehicles, with scrap value ranging between 4-6% of the ex-showroom price.
- The IRDAI warned that salvaged vehicles without cancelled RCs are often misused to give new identities to stolen cars by forging engine and chassis numbers.
- Keeping a wrecked car requires cancelling the RC and ensuring it is used in safe condition, as repairing is difficult.
Accident vehicle salvage includes selling damaged vehicles (wreckage) after total loss claims. GST on salvage depends on ownership:
- If the insurer pays the full Insured’s Declared Value (IDV) and takes ownership of the wreck to sell, the insurance company is liable for GST on the disposal.
- If the insurer pays the claim minus the estimated salvage value (deductible), the owner retains the salvage, and no GST is payable by the insurer on that value.
- For businesses, a total loss claim is not generally taxable, but any profit made from selling the salvage might affect taxable profits.
Marine Salvage:
Salvage law is governed by the Merchant Shipping Act, 1958, which entitles individuals who voluntarily rescue ships, cargo, or property from maritime peril to a reward. This, ensures fair compensation for successful efforts. Key elements include voluntary service, real danger, and success, with rewards determined based on risks and value.
- Covered under the Merchant Shipping Act, 1958, along with the Merchant Shipping (Wrecks and Salvage) Rules, 1974 and relevant international conventions adopted by India, such as the 1989 Convention.
- Salvage involves the voluntary saving of life or property (vessel/cargo) in danger at sea.
- Requirements for Claim include – the property must be in real danger, the service must be voluntary, not a contractual duty, and the salvage operation must be successful or partly successful then alone the individual is rewarded.
- The law rewards the saving of human life, which may be paid by the government or from the value of saved property.
- The reward is calculated based on the value of the property saved, the risk involved, the skill of the salvors, and the expense incurred.
- The Central Government appoints officers (Receiver of Wreck) to manage wrecks, claims, and the sale of abandoned property.
- Lloyd’s Open Form(LOF): A common, international, standard contract often used to avoid litigation.
- Modern salvage law, including in India, includes rewards for preventing environmental damage, even if the property itself is not fully saved.
Is the law too lenient? Too Humane? Or Both? Consider the following:
The search for MH370 is largely conducted on a “no find, no fee” basis (unpaid unless successful). The Malaysian government has contracted US-based marine robotics firm Ocean Infinity, which will receive up to $70 million only if it successfully locates the wreckage. The contract is based on results; if the wreckage is not found, the private company bears the cost of the search efforts. A 2018 search by Ocean Infinity was unpaid due to the failure to find the aircraft. A new search scheduled for 2025/2026 focuses on a 15,000 square-kilometre area in the southern Indian Ocean, continuing the “no find, no fee” model.
In a world where there is no value for the dead, can there be some value for the salvage?
Aviation Salvage
Retired aircraft are typically cannibalized for usable components (radar, engines, avionics) before the remaining structure is dismantled. India is developing its aircraft recycling industry, with increased focus on environmental compliance in accordance with Directorate General of Civil Aviation (DGCA) rules. InAvia Aviation is setting up a major, state-of-the-art aircraft dismantling and Maintenance, Repair & Overhaul (MRO) facility near Bhopal.
Decommissioned planes are sold via auctions (often listed in Tender Tiger), with aluminium and titanium recovered from scrap. The aviation sector faces high costs for recycling and requires specialized technology and skills.
Nano Aviation is a Chennai-based company that has performed aircraft dismantling. InAvia Aviation is a significant dismantling/MRO hub in Bhopal. And Avis Ventures is involved in aviation spare parts management.
While military aircraft are often gifted for education or melted, civilian planes are frequently taken back by lessors or auctioned for industrial scrap.
The aircraft that was destroyed in the Karipur plane crash was brought to a scrap yard in the first week of March 2026. In other words, it was lying there for the past 65 months! The damaged Air India Express aircraft has been transported in trucks to be dismantled. The Karipur plane crash occurred on August 7, 2020, and 21 people were killed in the disaster. The aircraft fell outside the airport. Due to the impact of the fall the aircraft split into two parts. The accident occurred after the aircraft skidded off the runway during heavy rain, making it difficult to see clearly.
The accident took place at Calicut International Airport when an Air India Express flight operating under the Vande Bharat Mission skidded off the while landing and fell about 35 feet down a slope. The aircraft involved in the crash was flight IX-1344 from Dubai to Kozhikode. A total of 191 people were on board the aircraft. Capt. DV Sathe tried his best to save the lives of hundreds. Captain Deepak Vasant Sathe had turned off the engine before the crash, thus ensuring that it didn’t catch fire, which would have been catastrophic.
The trucks cleared the debris from the ill-fated AI 171 flight, which crashed onto a BJ Medical Hospital mess in Meghaninagar in June, 2025. During the operation, the aircraft’s tail section got stuck in tree branches forcing a partial road closure. It took airport firefighters over 90 minutes to free the tail, a vital piece of evidence. The wreckage was being moved to a specially prepared site opposite the Gujarat State Aviation Infrastructure Company Limited (GUJSAIL) office near the airport, where investigators will attempt to reconstruct the aircraft to identify the cause of the crash that killed over 270 people. And let me tell you, it is still there!
On a concluding note, it can be said that the present insurance legal structure is not attuned for the safety and well being of the public; rather it is more inclined towards reducing the insurer’s losses. Allow us to amend the famous lines of Robert Frost in the following manner:
The legal & insurance woods are lovely, dark and deep,
But I have promises to keep,
And miles to go before I sleep.
Authored by:
Dr K. Rajagopal Reddy
PhD, FIII, FCII (UK), FLMI, FT
Chartered Insurance Practitioner
Topspot Insurance Broking Pvt. Ltd.
