In India, it is mandatory for motorists to secure their vehicles with at least third-party insurance. You pay a premium for coverage, and in exchange you receive financial protection against unforeseen events. Now, did you know that your car insurance premium is affected by GST? Continue reading to find out more
What is car insurance?
Car insurance is an agreement between two parties, namely the car owner and the policy provider. According to this agreement, you, the car owner, will pay premiums in exchange for the protection provided by the insurance company. The insurance company covers loss or damage caused to the vehicle as mentioned within policy terms. Thus, with car insurance, your vehicle is protected and allows you to easily access financial assistance when you most need it.
There are two main types of car insurance policies available – third-party insurance and comprehensive insurance. While third–party insurance only covers you for losses caused to the third-party, comprehensive insurance covers you against own damages too.
What is GST?
The Union Government, in 2017, introduced the Goods and Services Tax (GST) as the largest tax reform in Indian history. Prior to the inception of GST, taxation in India was complicated, with a multi-tiered and indirect consumption tax system. This system consisted of taxes like Central Excise Duty, Service Tax, Value Added Tax (VAT), Interstate Sales Tax (CST), Luxury Tax, etc.
GST simplified the tax system by creating a destination-based tax, wherein the consumer has to only bear the burden of the charges imposed by the final goods or services provider in the supply chain. The GST system is structured so as to include three components, which are Central GST, State GST, and Integrated GST. These taxes are charged at uniform rates of 0%, 5%, 12%, 18%, and 28%, according to the item purchased or service sought.
While certain sectors have experienced a price drop with the introduction of GST, others have seen a competitive rise in pricing. In the latter category, the insurance industry has been included in one of the higher tax slabs leading to premium costs increasing
What is the impact of GST on vehicle insurance?
When it comes to insurance, GST has had an impact on premiums charged. Before GST was introduced in India, auto insurance premiums included service tax. Thus, vehicle insurance, including car insurance, was taxed at a rate of 15% as per the tax system existing at the time. Once GST was implemented, vehicle insurance premiums were taxed at a rate of 18% on the premium amount payable. As a result, due to the enforcement of GST, there was an increment of 3% on the cost of insurance due to the tax levied under the new norms. To further understand the impact of GST on car insurance premiums, let us take a more comprehensive look at the same
As mentioned above, prior to the implementation of GST, the service tax levied on car insurance premiums was 15%. This charge consisted of 14% service tax, 0.5% Krishi Kalyan cess, and 0.5% Swachh Bharat cess. As per the new system, car insurance GST percentage increased by 3% and went up to 18%. This increment of 3% is without taking costs of inflation and other factors into account.
To illustrate these changes, take a look at the following illustration: In 2016, Mr. A was paying an insurance premium of INR 10,000. Under the existing tax system, he was charged taxes at the rate of 15%. Thus, Mr. A was paying a total premium of INR 11,500. After 2017, with the GST system enforced, Mr. A‘s premium remained the same. However, now he had to pay tax at a rate of 18%. Thus, the total premium amount increased to the tune of INR 11,800. As a result, with the change in the tax system, Mr. A ended up paying INR 300 more than what he used to pay in 2016
Things to keep in mind about GST on car insurance policy
While it is true that the onset of GST has led to an increase in the premiums payable on car insurance, such policies are still vital to financial security. It is crucial to have a car insurance policy that protects you from unexpected loss or damage caused to the vehicle due to accidents or other calamities.
Further, keep in mind that while opting for a car insurance policy, the premium payable is not the only criterion you must focus on. You must consider factors like the kind of coverage offered, the Insured Declared Value (IDV) of the vehicle, the ease of access, etc. Apart from the GST on car insurance policy, make sure you understand the add-on benefits offered and how they align with your financial circumstances. Plus, keep an eye on the terms and conditions applicable before signing up
Lastly, while the premiums on car insurance have increased due to GST, policy providers are attempting to take measures that compensate for such an increment. Today you can choose from various car insurance policies that offer innovative features, effective coverage, and helpful customer service. With leading insurance providers, you can avail car insurance that suits your needs and provides financial security. You can also enjoy a No Claim Bonus for every claim-free year as well
For enhanced coverage, you can opt for various add-ons such as Return to Invoice Cover, Depreciation Reimbursement, Engine Guard, Roadside Assistance, and Cover for Consumables. These riders will come at an added charge on your car insurance premium. Lastly, to make choosing a policy easier, you can make use of the online car insurance calculator. This will help you make a well-informed decision
Disclaimer: The above information is indicative in nature. For more details on the risk factor, terms and conditions, please refer to the Sales Brochure and Policy Wordings carefully before concluding a sale.