What Impact does GST have on Car Insurance?

GST or Goods and Service Tax is the biggest ever tax reform in the country. GST Act was passed by the government in 2017. It was brought into effect from 1st July of the same year.

What is GST?

GST is the single tax which is levied on the supply of goods and service. It has taken the place of VAT, Central Excise Law, Entry Tax and much more. Previously, we had many such taxes, but it was beginning to create confusion. Thus the GST system was established to make things simpler. It is easier to keep track of one single tax than multiple ones. The final consumer pays only the GST charged by the last provider of goods and services in the supply chain.

There are three components in the GST

1. Central GST

2. State GST

3. Integrated GST

Right now, GST is charged at fixed rates of 0%, 5%, 12%, 18% and 28%. This is for all goods and services. Some things like lifestyle products and home appliances have become more expensive post-GST. On the other hand, automobiles and consumer goods have seen a fall in price after implementation of GST. 

The introduction of GST had far-reaching effects in the insurance industry. Insurance policies got more expensive for customers.

This table below shows what was the situation pre-GST, and how it became after GST implementation

Before GST, service tax was included in insurance premiums. Later, GST replaced service tax.

Product type	Applicable on	Service tax + cess pre-GST	Tax rate post-GST
Car insurance which includes 2-wheeler and car insurance	Premium payable	15%	18%
Insurance riders	Rider premium	15%	18%

For LIC policies there are varying rates under GST. There are higher rates for endowment plans of its first year premium. After that the GST rate becomes lower. ULIPs or Unit Linked Insurance Plans are charged just on the premium, but not the investment amount.

For auto insurance, GST tax is 18% now. This is a 3% increase from what it used to be. This increase is borne by the customer or policyholder, and not by the company. Premiums shall be higher, but it also means that companies will do their best to get more customers. They are now offering attractive offers, services and discounts. They also offer cashless garage facilities. 

In short, GST implementation brought about many changes in the insurance industry. It pushed up premium costs considerably, but due to it, companies are offering many benefits too. When it comes to car insurance, you can’t drive without one. So compare and contrast different plans online, and choose the one that suits you best.