Under the previous taxation scheme, motor insurance premiums were subject to a 15% Service Tax; however, under the GST, the rate is now 18%.
The impact of GST on car insurance is a 3% increase. The policyholder bears the increased tax on auto insurance by paying a higher premium.
In India, the GST applies to all products and services. One of them is the cost of auto insurance. Prior to the introduction of the GST, there were many indirect taxes, including sales tax, service tax, excise duty, and other state-specific taxes. The amalgamation of all these indirect taxes resulted in the creation of the GST, a single tax slab.
Before determining the rate on an insurance policy, an insurance broker can pass on the GST on auto insurance premiums to consumers, as well as operating costs. Prior to the introduction of GST, the service tax on car insurance premiums was 15% (14% as service tax, 0.5% as Krishi Kalyan cess, and 0.5% as Swachh Bharat Cess); However, with the implementation of GST, the tax on motor insurance premiums is now 18%. By raising the tax, vehicle insurance premiums are bound to rise in comparison to pre-GST levels.
Key Takeaway
The immediate consequence of the GST introduction of motor insurance plans is a rise in the premium you pay for the policy. To get a low car insurance premium, compare car insurance policies and choose the appropriate add-ons.