How will GST impact on your Car Insurance Premium?

GST on Car Insurance

Car insurance is categorised as a service provided by an insurance service provider. So, it comes under the purview of the Goods and Services Tax (GST). A flat rate of 18% GST is applicable on your car insurance premium. 

 

The impact of the levy of GST on car insurance premium is that it directly leads to an increase in the premium you have to pay towards the policy. However, although the GST is an added expense, the benefits provided by a comprehensive car insurance policy far outweigh this negligible increase in the car insurance premium.

 

Car insurance is a service provided by an insurance service provider and it is mandatory to have, at least, a third party insurance policy for your car. If you purchase car insurance, you will have to pay the GST on the car insurance policy. GST is a consumption tax based on the credit invoice method where the value addition at each stage is taxed. This indirect tax law is levied on supply of services and goods and is applicable across India. It has replaced or subsumed a large number of consumption and indirect taxes that previously existed in India. The GST rates for goods and services have been placed in four categories of 5%, 12%, 18% and 28%. GST on car insurance falls in the 18% category. The GST on car insurance premiums replaced the previous services tax which was levied at the rate of 15%.

 

The current car insurance GST rate is 3% higher than the pre-GST rate. So if you are purchasing car insurance for Rs 10,000, you will be charged the GST at the rate of 18%, therefore you have to pay Rs 1800 as GST.

Pre-GST 

Post-GST

Impact of GST on Car Insurance Premium

The inclusion of GST on car insurance results in the increase in the cost of the premium for the policy. Before the GST regime came into effect, the service tax on car insurance premiums was at 15%. The breakdown of this pre-GST tax was 14% service tax, 0.5% Swachh Bharat cess and 0.5% Krishi Kalyan cess. When the new taxation system came into effect, the car insurance GST rate was fixed at 18%. This means you will now have to pay 3% more on car insurance premiums than you would have paid in pre-GST times.

 

Can a GST number be added to a Car Insurance policy?

GST number is a 15-digit unique code called GST Identification Number, or GSTIN. It is allotted to a company or person registered under the GST system. The GSTIN can be obtained by all eligible tax-payers and is used to file GST returns. If you have purchased a car insurance policy and paid GST on the car insurance premium, you can contact the customer care team of the insurance company and ask for the GSTIN. You can then add the GSTIN to your car insurance policy.

Conclusion

If you own a car, it is mandatory under law for you to have a car insurance. When you purchase a car insurance, you are required to pay GST on the car insurance policy. GST on insurance has led to an increase in the premium rates. The car insurance GST rate is 18%, which is 3% more than the previous tax rate on car insurance policy. While there is an increase in the tax tariff, a good thing is that you can claim the GST amount by filing the GST return. If you are registered under the GST system and have a GST identification number, you should add it to your car insurance policy.