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

• An actionable claim signifies a legal right to make a demand from another party and usually involves monetary compensation.
• Actionable claims are broadly classified into two categories - secured actionable claims and unsecured actionable claims.
• Mortgages, secured business loans, and auto loans are examples of secured actionable claims.
• Unsecured actionable claims include personal loans, credit card debt, trade credit, etc.

You may have come across the term ‘actionable claim’ and wondered what it signifies, especially in the context of GST (goods and services tax) and TPA (Transfer of Property Act). Understanding this legal concept is crucial for navigating various transactions, including financial and property transfers.Read on as we simplify this seemingly complex legal concept. From the meaning of an actionable claim under and TPA to its types, this blog shares the important details that you should know.

Actionable claims signify a legal right to make a demand from another party and usually involve monetary compensation. Here is what they mean under GST and TPA.

Actionable Claim under GST

An actionable claim under GST is a claim to any debt, whether secured or unsecured. It excludes lottery, betting, and gambling.Actionable claims are taxed only when transferred or sold for a price, i.e. tax is levied on the supply of the right to recover the debt and not on the debt itself.In other words, the tax liability arises when the claim is assigned or sold for a consideration. Also Read: How Does GST Work in India?

An actionable claim under TPA refers to a claim that can be enforced by legal action and includes any debt or beneficial interest in movable property.It is a claim to any debt not secured by a pledge of movable property, mortgage of immovable property, a beneficial interest in movable property not in the claimant’s possession, etc.

Actionable claims are primarily classified into two categories - secured actionable claims and unsecured actionable claims. Secured Actionable Claims When an actionable claim is backed by a security or collateral, it is referred to as a secured actionable claim. Under this claim, creditors enjoy security as the attached collateral can be liquidated if the debtor defaults. Below are some examples of such claims:

• Mortgages: When you mortgage your property and default in repayment, the lender (i.e., usually a banker) recovers the dues by selling the property.
• Secured Business Loan: Similar to the above, if you are unable to repay the loan taken against your assets, the lender can sell and recover the outstanding dues.
• Auto Loans: In this case, your vehicle is the attached security, which the lender can sell if you fail to repay your obligations.

Contrary to a secured actionable claim, an unsecured actionable claim does not have an attached collateral or security. The examples below will make this concept clearer:

• Personal Loans: You typically get a personal loan depending on your repayment history and financial stability, without any collateral.
• Credit Card Debt: A card issuer issues you a credit card depending on your credit score without taking any collateral as security.
• Trade Credit: Suppliers usually offer trade credit to customers. They supply the said goods and services against a payment that will be received on a later date.

An actionable claim is transferrable. However, the legal and tax procedures differ under GST and TPA. It is crucial to understand both frameworks. Broadly speaking, here are the two ways through which the transfer is affected: Negotiation Here, the claim is transferred through an endorsement and involves the negotiation of a negotiable instrument like a promissory note. Assignment Under assignment, the existing claimants can transfer their rights in the claim to a new claimant.

Now that we have covered an actionable claim under GST, this section briefly addresses non-actionable claims. Claims not qualifying as actionable claims are non-actionable claims. Winning a lottery is a common example of non-actionable claims.

As the blog explains, an actionable claim comes into play when you fail to repay your financial obligations, including taxes like GST. Use an online GST calculator to know your tax amount and ensure timely payments.Always make it a point to repay your dues in time to prevent such claims. Consider strategies that can help you manage your cash flows effectively and avoid defaults.A flexible repayment option schedule could be helpful here. To explore such options, consider talking to a representative from Aditya Birla Capital and find a loan solution that best suits your business needs.