When buying car insurance, policyholders have to pay GST i.e. goods and service tax which is set at 18%. Read on to know everything about GST and its impact on car insurance premiums.
A car insurance policy offers financial coverage to the policyholder in case of damages caused to a third party or own car. When buying car insurance, policyholders have to pay GST i.e. goods and service tax which is set at 18%. Due to this, the car insurance premium has increased. Policyholders having a GST number can add it to their car insurance policy and claim it back at the time of tax filing. Read on to know everything about GST and its impact on car insurance premiums.
What is GST?
GST or good and service tax is a unified system of indirect tax which has replaced as many as 17 types of indirect taxes in India. These indirect taxes include luxury tax, central excise duty, value-added tax and others. GST is applicable on the sale of goods and services in India, levied by the central and state government. In the year 2017, a GST bill was passed in Lok Sabha and Rajya Sabha and on 1st July, 2017, the GST law came into force. In the case of Central GST i.e CGST, the tax is collected by the Central Government and in the case of SGST, the tax is collected by the state government.
In the case of the exchange of goods and services between the states, the central government collects the GST. Fixed GST rates of 0%, 5%, 12%, 18% and 28% are applicable, depending on goods and services you may avail. For instance, 28% GST is applicable on the purchase of a car.
Impact of GST on car insurance premium
Increase in tax
In the previous tax system, the GST premium attracted a premium of 15%, however, as per the new GST, the premium is charged at 18%. The increase in GST by 3%, resulted in higher premium payments for policyholders.
For instance, as per the previous tax regime, your car insurance premium of Rs. 10000 at 15% GST rate would be Rs. 1500. The total premium including tax would be Rs. 11, 500. But after the introduction of the GST regime, 18% tax applies to car insurance premium. The premium of Rs. 10000 attracts 18% GST which comes to Rs. 11, 800. Thus, after the advent of GST, car owners are shelling out extra premiums.
With the premium increase, insurance companies are now offering a discount on online purchases, increased cashless garage facilities, and great customer service. Even though the GST has led to an increase in car insurance premiums, motor vehicle owners cannot drive vehicles on Indian roads without a valid car insurance policy. Buying car insurance is a mandatory requirement.
Can you add a GST number to your car insurance policy?
GST which is a 15 digit unique identification number is allocated to every individual registered under GST. This unique number can be obtained by eligible taxpayers such as business entities, dealers, suppliers, etc. The number can be used to file GST returns and is based on your PAN number. The GST number can be added to the car insurance policy at the time of purchase or renewal. All you simply need to do is contact the customer care centre of the insurance company.
Though the introduction of GST has led to an increase in car insurance premiums, the good thing is that you can claim the amount at the time of filing returns. Also, an increase in car insurance premiums means better services provided by the insurance company. In any case, don’t miss out on buying insurance for your car as it is a legal mandate under the Motor Vehicles Act, 1988.