Impact Of GST On Motor Insurance Premiums

The impact of GST on motor insurance premiums has been a key concern for vehicle owners since its implementation. With the introduction of the Goods and Services Tax, multiple indirect taxes were replaced with a single tax structure, simplifying taxation across sectors. However, motor insurance premiums witnessed a marginal increase due to higher GST rates. Understanding how GST on motor insurance works helps policyholders evaluate premium changes, coverage value, and long-term affordability while renewing or buying a motor insurance policy.

GST on Motor Insurance

Before understanding the impact of GST on motor insurance, it is important to know what GST represents. The Goods and Services Tax is a unified indirect tax that replaced several state and central taxes, such as service tax, VAT, and cess. GST is divided into Central GST (CGST) and State GST (SGST) for intra-state transactions.

GST is structured across four slabs of 5 per cent, 12 per cent, 18 per cent, and 28 per cent, depending on the nature of goods or services. Motor insurance falls under the 18 per cent GST slab. Before GST, insurance premiums were subject to a 15 per cent service tax. After GST implementation in July 2017, the tax rate on motor insurance premiums increased by 3 per cent.

This change applies uniformly to all types of motor insurance policies, including third-party car insurance, comprehensive car insurance, and standalone own damage covers. As a result, policyholders pay a slightly higher tax component on their motor insurance premiums compared to the pre-GST regime.

Impact of GST on Car Insurance Premiums

The impact of GST on car insurance premiums became noticeable immediately after its introduction. Since the GST rate increased from 15 per cent to 18 per cent, the total payable premium amount rose proportionately. The difference can be understood through the following example:

Before GST implementation (Service Tax regime):

After GST implementation:

The overall increase amounts to Rs. 450 annually. Initially, this increase was directly borne by policyholders. Over time, however, insurers optimised product pricing, coverage benefits, and add-ons to balance the overall cost. Today, despite higher GST on motor insurance, customers often receive better coverage, wider cashless garage networks, and digital claim benefits without a significant increase in out-of-pocket expenses.

Why Basic Third-Party Insurance Isn’t Enough for Your Car’s Safety

While third-party motor insurance is mandatory under the Motor Vehicles Act, it offers very limited protection. It only covers legal liabilities arising from injury, death, or property damage caused to a third party. It does not cover damages to your own vehicle.

With rising repair costs and unpredictable road conditions, relying solely on third-party insurance can expose vehicle owners to significant financial losses. Comprehensive motor insurance or standalone own damage policies provide coverage against accidents, theft, fire, floods, and other risks. Even with GST on motor insurance, the additional cost is minimal compared to the financial security and peace of mind it provides.

FAQs

Can we claim GST on motor vehicle insurance?

GST paid on motor vehicle insurance can be claimed as input tax credit only when the vehicle is used for business purposes and meets GST eligibility conditions. Personal vehicles used for private commuting do not qualify for GST credit on insurance premiums.

Is GST on car insurance reduced?

GST on car insurance has not been reduced. Since the implementation of GST in July 2017, car insurance premiums have continued to attract a fixed GST rate of 18 per cent, replacing the earlier service tax rate of 15 per cent.

Can we claim GST input on insurance?

GST input tax credit on insurance is allowed only in specific cases, such as insurance for commercial vehicles or employer-provided insurance benefits. The claim is subject to GST laws, business usage, and proper documentation. Insurance for personal vehicles does not qualify.

How does GST affect the tax on motor insurance policies?

GST increased the tax rate on motor insurance premiums from 15 per cent to 18 per cent. This resulted in a marginal rise in overall premium costs for policyholders. However, insurers later adjusted pricing and benefits to balance the increased tax impact.

Is GST on car insurance reduced?

Currently, there is no GST reduction on car insurance. The applicable GST rate remains 18 per cent for all types of car insurance policies, including third-party, comprehensive, and standalone own-damage car insurance covers.

How is GST calculated on car insurance premiums?

GST on car insurance is calculated at 18% of the base premium. The final payable premium includes the base premium plus GST. Any car insurance add-on covers selected also attract GST at the same applicable rate.

Is GST applicable to third-party insurance?

GST applies to third-party motor insurance. The premium for third-party car insurance attracts GST at 18 per cent, as with comprehensive and own-damage policies, making it mandatory for all vehicle owners to purchase the legally required coverage.