18 Jun 2020

The Goods and Services Tax (GST) instituted by the Union government  came into force on July 1st 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 prior to 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 impacted 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 as well as insurance riders taxed premiums at a rate of 15% under the original service tax system. After the enforcement of GST on vehicle insurance, this rate has gone up to 18% on premiums payable. Hence there has been a hike in the cost of insurance due to GST being levied. 

Impact of GST on Car Insurance Premium

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

How GST Impacts Customers?

If, for example, your annual  car insurance premium stood at Rs. 10,000 without tax prior to GST, you would have had to pay 15% of this sum or Rs. 1500 as service tax and your final premium amount would have stood at Rs. 11,500. Now, if the GST rate of 18% is substituted in  this case, the premium amount comes out to be Rs. 11,800 which is Rs. 300 more than you would have paid in the time before GST on car insurance was levied.

GST on Car Insurance in India

However, possessing third party insurance at the very least, is mandatory when purchasing and driving vehicles on Indian roads. With the higher car insurance GST rates now levied, vehicle owners now pay higher premiums to possess even this basic level of coverage. In order to make their products more attractive, service providers are now enhancing insurance products with features like more coverage, cashless garages, flexible plan structures, discounts on online purchases and high quality customer service in order to balance out the effect of  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 portal.

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 insurance is mandatory, it does not provide coverage against damages to the policyholder’s vehicle like 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. 

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.