GST AND ITS IMPACT ON CAR INSURANCE PREMIUMS

To regulate and maintain a unified tax regime in India, the Goods and Service Tax -GST was passed from effect 2017. With this singular form of the tax structure for sale of goods and services, which replaces all the central and state taxes in India, GST is applicable to vehicle insurance as well.

What is GST?

Earlier, there were numerous types of taxes levied on the sales of goods and services. Various taxes like Central Excise Duty, Interstate Sale of Goods -CST, Service Tax, Value Added Tax -VAT, Entry Tax, Luxury Tax, or Purchase Tax were existent. To eliminate the multiple indirect taxes, government of India formulated a single or a unified system of collecting indirect taxes in the form of GST.

So, now any tax levied by the Central or the State government on the supply of goods or services gets converted into GST. It works for supply of goods and services between states as well in the form of Central GST -CGST or State GST -SGST. The same applies for the exchange of goods and services between states as Integrated GST -IGST.

 

GST and Insurance

GST gets applied to both kinds of insurance available in India, the life insurance as well as the general insurance which includes health, car and two-wheeler insurance.

When it comes to GST in insurance, it gets impacted by factors like the premium or risk factor component. Though the premium part of insurance is exempted from income tax, the risk factor component is taxable. Overall, the GST has increased the premium due to the increase in taxation by from the earlier taxation system as per the GST applied in today’s time.

This increase in insurance premium makes insurers offer more innovative features like effective coverage, discounts, cashless facilities and excellent customer service.

 

Impact of GST on vehicle insurance and its premium

With GST all the indirect taxes have got merged into one single tax slab. An insurance provider passes on the GST on car insurance premium to customers including the administrative costs before fixing the premium for any insurance policy. Before GST, the car insurance premium service tax was 15% - 14% of service tax, 0.5% of Krishi Kalyan cess and 0.5% of Swachh Bharat Cess. With the GST being implemented, tax is now 18% on car insurance premium. By the increase of tax, the premium on car insurance is bound to be higher compared to earlier times.

Type	Pre-GST	After GST
Car insurance	15%	18%

 

Say for instance, earlier before GST got implemented, if car insurance premium was 10 thousand rupees and service tax at 15% then you had to pay 11,500 rupees. With the increase in GST, the rate is 18% which now increases the premium amount to 11,800 rupees to be paid by the insured.

 

Conclusion

While choosing the best insurance plan for you always compare the features and benefits of each plan and then decide. Do not let minor factors like GST or slightly higher premium affect your decision to not buy a good plan for yourself as right insurance shall provide right coverage to you and your family members. Be smart and pick your insurance plan wisely!

FAQs – Frequently asked questions.

Let's take a look at some frequent queries on GST on car insurance and its impact on car insurance premiums;

Q1. Does GST get applied to the other insurance forms apart from vehicle insurance?

Yes, GST gets applied to life and health insurance plans as well at the same rate as the vehicle insurance.

Q2. If the price of a car insurance policy is Rs. 11,000, how much would be the impact of GST on car insurance, is the premium slightly higher?

Yes, if the price of a car insurance policy is Rs. 10,000, then GST will be levied on it, at 18%, which would be Rs. 1,980, thus your total car insurance premium will be Rs. 12,980.

Q3. Does premium of a car insurance policy constitute of more components?

Yes, the premium of a comprehensive car insurance policy involves components like, premium for the Third-party cover, for the Own Damage cover, Personal Accident cover and GST at the current applicable rate.