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What is GST?

The Goods and Services Tax (GST) instituted by the Union Government came into force on July 1, 2017. It was the largest tax reform in Indian history since independence in 1947. GST is a value-added tax that sought to do away with the complicated, multi-tiered and indirect consumption tax system that existed before 2017. This system consisted of taxes such as Central Excise Duty, Interstate Sale of Goods (CST), Service Tax, Value Added Tax (VAT), Entry Tax, Luxury Tax and Purchase Tax.

Under the new system, GST is a destination-based tax where the final consumer will only have to bear the burden of the charges levied by the last goods or service provider in the supply chain. The system is structured into three components, namely Central GST, State GST and Integrated GST. They are levied at uniform rates of 0%, 5%, 12%, 18%, and 28% depending upon the concerned item or service involved. While some sectors have seen prices drop, others have seen more competitive pricing emerge among players in the market since GST came into force.

The insurance industry, in particular, has been affected as it comes under one of the higher tax slabs due to which premium costs have gone up.

How GST has Affected Vehicle Insurance?

The effects of GST on car insurance are closely tied to the parameters of risk and premiums. Before GST on vehicle insurance came into being, auto insurance premiums were inclusive of service tax. Thus, all vehicle insurance, including car insurance and two-wheeler insurance, taxed premiums at a rate of 15% under the original service tax system.

After the enforcement of the GST rate on vehicle insurance premiums, this rate has gone up to 18% on premiums payable. Hence, there has been a hike of 3% in the cost of insurance due to GST being levied.

Impact of GST on Car Insurance Premium

The impact of GST rates on vehicle insurance premiums can be broken down further. Prior to the introduction of the car insurance GST rate, the service tax on car insurance premiums stood at 15%. The total tax levied amounted to 14% as service tax, 0.5% as Krishi Kalyan cess and 0.5% as Swachh Bharat cess. After the new system came into force, the car insurance GST percentage stood at 18%. This resulted in policyholders having to pay 3% more on premiums than they would have prior to GST without accounting for inflation and other factors.

How Does GST Impact Customers?

The service tax on motor insurance stood at 15% prior to the introduction of GST which then changed to 18%. So, let’s understand how GST on car insurance policy premiums has changed and its impact on policyholders:

Before GST:

Car Insurance Premium (without taxes)

Pre-GST Rate

Service Tax

Total

₹10,000

15%

₹1,500

₹11,500

After GST:

Car Insurance Premium (without taxes)

GST Rate

Service Tax

Total

₹10,000

18%

₹1,800

₹11,800

The premium amount after GST comes out to be ₹11,800 which was previously ₹11,500. This is ₹300 more than you would have paid in the time before GST on vehicle insurance was levied. However, safety for you and your vehicle is just as crucial, if not more, due to the uncertainty on the road.

GST on Car Insurance in India

Possessing third-party insurance at the very least is mandatory for driving vehicles on Indian roads. With the higher GST rates for car insurance, vehicle owners now pay higher premiums to possess even this basic level of coverage. To make products more attractive, service providers are enhancing insurance products with features like more coverage, cashless garages, flexible plan structures, discounts, etc. to balance out the higher car insurance GST rates. If you’re seeking car insurance, you can avail all of these and more by choosing the car insurance plan available on the Finserv MARKETS today!

Things to remember

It is fairly clear that the implementation of GST has resulted in higher premiums for vehicle insurance plans. However, this should not be the only criteria by which this reform should be judged as its wider purpose was to simplify the convoluted tax structures in India that preceded it.

Additionally, while third-party car insurance is mandatory, it does not provide coverage against damages to the policyholder’s vehicle as comprehensive insurance plans do. Hence, comparing a wide range of policies from many service providers is the best approach to finding the appropriate coverage for you at an agreeable cost.

The motor insurance plans for cars and two-wheelers available on the Finserv MARKETS platform provide comprehensive coverage, swift claim settlement, round the clock assistance and excellent customer service. Choosing to avail these through the Finserv MARKETS allows your application and claims process to be entirely digital, significantly reducing the time taken for processing and approval.

FAQs on Impact of GST on Car Insurance Premium

  • ✔️Is GST charged on vehicle insurance?

    Yes, Goods and Services Tax or GST is charged on vehicle insurance plans.

  • ✔️What is the current GST rate on car insurance?

    The current GST rate for vehicle and car insurance is 18% that you must pay through the insurance premium amount. 

  • ✔️Which motor insurance policy is mandated by law?

    Third-party motor insurance is mandated under the Motor Vehicles Act, 1988. If you do not have a valid insurance plan, you will have to bear a hefty penalty.

  • ✔️What are the components of a car insurance premium?

    A comprehensive car insurance premium is made up of three key components, which include third-party (Liability) cover, Own Damage (OD) cover, and Personal Accident (PA) cover.

  • ✔️How can I buy car insurance online?

    To buy online car insurance on Finserv MARKETS, follow the below steps:

    • Go to the ‘Car Insurance’ section on Finserv MARKETS

    • Select the type of insurance policy you want

    • Fill in the required details in the application form

    • Add the required add-on covers to your plan

    • Review the policy terms

    • Pay the premium online

    • You shall receive the car insurance policy document soon!