Why GST on Car Insurance Still Attracts 18% GST: Post-Reform Analysis

Since car insurance is still considered a service, and its premium comprises multiple components such as add-ons, own damage cover, and third-party cover, the 18% GST on car insurance is uniformly applied. Unlike health and life insurance policies, which are exempt from GST under the latest 56th Goods and Services Tax reform of 2025, car insurance remains taxable.

To know details about what GST is on car insurance, why the car insurance GST rate in India has remained the same, and its impact on car owners, read this blog. 

What is GST on Car Insurance?

According to the GST Act, while purchasing car insurance in India, be it a comprehensive cover, a third-party or a standalone own damage cover, besides the base premium, you need to pay 18% Goods and Services Tax (GST).

The GST rate is uniform irrespective of which type of policy or add-ons you choose. For example, Mr Rana purchases a comprehensive car insurance cover from Bajaj General Insurance. The IDV of the car is ₹7 Lakh, and the premium is ₹20,000.

So, in total, the insurer will receive (vehicle insurance premium+ 18% GST) = (₹20,000 + ₹3,600) = ₹23,600.

This means the insurer collects the premium plus applicable GST, which is then deposited under the GST system.

Reasons why GST on Car Insurance Still Attracts 18% GST

According to the Press Information Bureau (PIB), the latest GST reform has reshaped India’s taxation system, with the objective of better serving the nation's youth. Besides simplifying the tax structure, the reform has reduced rates across key industries, including the automobile industry.

For example, small cars now attract a GST of 18%, which is lower than the previously applicable 28%. As a result, middle-income families and young riders can easily afford such cars.

However, we have not noticed any changes in the premium of the car insurance policy. The reasons behind include:

Motor Insurance is Considered a Service

When compared to life or health insurance, which are essential protection products that contribute to social security, having car insurance is a contractual service attached to asset ownership. That is why it does not offer a tax exemption.

Also Read: Vehicle Replacement Advantage Add-on In Motor Insurance

Third-Party Insurance Regulation

The Insurance Regulatory and Development Authority of India (IRDAI) determines the third-party car insurance premiums. It is a standard price that all insurance providers follow. The premium for such a policy remains uninfluenced by the GST reform to maintain uniformity.  

ITC Applicability for Commercial Vehicles Only

As per the latest GST reform, only the commercial vehicle owners can claim Input Tax Credit (ITC) under the GST Act. Since private car owners cannot claim ITC, they have to pay 18% GST on their car insurance premiums.

Revenue Management

General insurance, including motor insurance, remains an important source of indirect tax revenue for the Government. Since the 2025 reforms reduced GST on several sectors and exempted life and health insurance, maintaining GST on motor insurance helps balance revenue collections. This is one reason why it has retained the existing rate.

Uniformity Across Policy Components

Most often, vehicle insurance consists of additional components, such as add-ons and third-party or own-damage coverage. To keep uniformity across all these components, 18% GST applicability still stands. If the GST structure varied for each feature, it would complicate the billing systems and compliance.

It is important to note that although the 18% GST on car insurance remains the same, the reduction in car prices has made it more affordable. Here is how:

Since vehicle prices have fallen, people are taking smaller loans and paying lower EMIs. This ultimately leads to more disposable income. 

Details on Recent GST Reforms in Insurance

The 56th GST Council meeting in 2025 introduced major changes to India’s tax regime.

Key highlights of the reform include:

1. GST simplification into two primary slabs, 5% and 18%

2. GST exemption on individual life and health insurance policies

3. Reduction in GST on car prices, for small cars, 18%

4. Flat 40% GST cess on large cars has created pricing predictability.

Also Read: Mumbai Traffic Rules: A Comprehensive Guide to E-Challans

Final Thoughts

The GST on car insurance remains at 18% because it is treated as a standard taxable service under India’s GST structure. While reforms in 2025 exempted GST on life and health insurance, motor insurance continued to attract 18% GST due to its service classification, revenue role, and existing tax framework.

Understanding the GST impact helps policyholders to make an informed choice while purchasing or renewing coverage.

Are you planning to buy car insurance online? Besides considering legal compliance, consider financial protection as well. For that, focusing only on buying the cheapest policy is not enough. Purchase the Bajaj General Insurance Private Car Package Policy for a 360° coverage at an affordable premium.  

FAQs on GST on Car Insurance

1. What is the GST on car insurance in India?

The GST on car insurance in India is 18% of the policy premium, regardless of the insurer or policy type.

2. Is GST applicable to third-party motor insurance?

Yes, third-party motor insurance also attracts 18% GST, even though it is mandatory by law.

3. Why is car insurance not exempt from GST?

Car insurance is classified as a service under the GST law and is not considered an essential welfare product, such as health or life insurance.

4. Can private car owners claim GST input credit?

Generally, no. Private vehicle owners cannot claim Input Tax Credit on car insurance premiums.

5. How can I reduce the total cost of GST on vehicle insurance premiums?

You can lower your total cost by choosing suitable coverage, maintaining a no-claim bonus, comparing policies online, and avoiding unnecessary add-ons.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.