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In July 2017, several taxes across India were unified under the Goods & Services Tax, which is popularly called GST. It’s definitely been the biggest tax reform in India, as it helped remove the effect of double taxation.
Before we get into the nitty-gritties of the impact of GST on motor insurance, let’s take a closer look at what exactly GST is. The Goods & Services Tax is the single, unified tax replacement for a number of indirect taxes that were previously levied at the state and central level. GST has two components, CGST (Central) and SGST (State). Depending on the kind of good or service being offered, there are 4 tax brackets – 5%, 12%, 18%, and 28%. Insurance has been allotted to the third category, so the GST on insurance premiums is 18%. Earlier, however, insurance premiums had a service tax of 15%. So, ever since July 2017, there has been a 3% increase in the taxes that individuals have to pay on their insurance premiums.
As soon as GST was implied, policyholders saw an increase in the total premiums that they ended up paying, due to the increased rate of taxation. We can understand the impact of GST on car insurance with the help of an example.
Let’s say Mr. Kumar has recently bought himself an SUV. For an insurance policy that offers comprehensive cover, his premium has been calculated atRs.15,000.
Let’s take a look at the amount Mr. Kumar had to pay before 1st June, 2017:
But, now that GST has been implemented, let’s see how much Mr. Kumar has to pay:
Initially, the 3% additional tax amount had to immediately be taken care of by the insured party. However, over the last year, insurance companies have restructured their policies to offer better cover at lower premiums, so that the overall amount that the customer has to shell out remains unchanged.
Even in cases where the premiums have increased slightly, it’s important to remember that a small cost ofRs.450 per year is definitely worth paying for the protection of your car. Remember, in India, it is mandatory to have at least third-party insurance under the Motor Vehicles Act. However, third-party liability is hardly enough to help you deal with the kind of wear and tear and accidental damages that take place. So, if you’re looking for better cover for your beloved vehicle, click here
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