Impact of GST on Bike Insurance: What Every Rider Should Know

The GST on bike insurance in India is set at 18%. When you purchase a bike insurance policy for your motorcycle in India, you pay it on top of the base premium of your chosen insurance type. Compared to the earlier tax regime, the impact of GST on bike insurance is 3% higher.

Although it slightly increases your premiums, GST on such insurance has streamlined taxation and improved transparency. As per the Motor Vehicles Act of 1988, it is mandatory to have at least a third-party liability insurance to drive a motorcycle on roads.

Hence, as a rider, you must note how this GST implication impacts your premium and its other aspects.

What is the Impact of GST on Bike Insurance?

The impact of GST on two-wheeler insurance is a slight increase in the overall premium, as the tax rate rose from 15% service tax to 18% GST. In the earlier tax structure, if you purchased bike insurance, you had to pay multiple taxes, such as a service tax of 14%. With it, you had to pay a Swachh Bharat Cess of 0.5% and a Krishi Kalyan Cess of 0.5%.

However, after the introduction of GST in 2017, the same structure, i.e. an 18% GST, applies to purchases of insurance for bikes as well, whether it is a third-party, standalone or a comprehensive plan.

To understand the impact of GST on bike insurance better, let us resort to an easy example. Suppose you buy insurance with a base premium of ₹5000. As per the earlier structure, you would pay ₹750 (₹5000*15%) extra, making your premium costing around ₹5750.

However, after GST, while completing an insurance purchase on an online portal or offline, you pay ₹900 extra. It makes your premium ₹5900, a slight increase of ₹150 over the previous structure.

Although it seems to be an increase, this helps with clearer premium calculations for policyholders. It also helps the government maintain a more uniform and efficient tax collection system.

Also Read: Impact of GST on Car Insurance

How Does the New GST Reform Impact Bike Insurance After Purchase?

With the recent GST reform, the Indian government aimed at making bike purchases affordable. For all types of two-wheelers under 350 cc, the government reduced the GST from 28% to 18%.

While GST reforms do not alter the GST on premiums, they have an indirect impact. With a reduction in the purchase of two-wheelers after the GST reform, the Insured Declared Value (IDV) reduces, resulting in lower premiums.

For example, if the price of a motorcycle before tax is ₹1,20,000, as per the old GST rate, its price becomes ₹1,53,600. Whereas now with a 18% GST the price becomes ₹1,41,600. This lowers the IDV of a new motorcycle. As insurers determine premiums based on a percentage of declared value, your premium lowers, indicating an indirect impact on bike insurance.

However, bikes beyond 350cc now attract a GST of 40%, which increases their ex-showroom price and, in turn, their IDV. Therefore, the insurance premiums of such bikes may increase as the ex-showroom price is now much higher.

How to Calculate GST on a Bike Insurance Policy?

As you buy bike insurance to cover your bike, you can understand the impact of GST on bike insurance with more transparency by calculating the implications. Here is how you calculate it:

Step  1: While exploring the policy options for your two-wheeler offered by an insurer, look at the base premium of the policy you need. This is the amount payable before the applicable GST comes into effect.

Step 2: As you have noted, the base premium of your chosen policy, add a bike insurance GST of 18 per cent to it. The amount you got is the tax to add to your entire insurance cost upon its purchase.

Step 3: To estimate the final amount, you can simply follow: Total premium = Base Premium + GST. If you have discount options such as an NCB or No Claim Bonus, deduct them from your base premium amount first and then calculate the GST for the insurance premium.

Ride your bike on the Indian roads legally and safely with updated bike insurance. At Bajaj General Insurance, explore the Two Wheeler Package Policy and buy the plan you need!

What is the Impact of GST on Bike Insurance for Add-On Covers?

While understanding the GST impact on bike insurance premiums, you may ask ‘Do GST apply to add-on covers for bike insurance?’ Here, you must note that as you enhance your policy coverage with add-ons, you typically need to pay individual GST when you buy them.

For example, if you are choosing an add-on like roadside assistance to get help with emergencies like towing flat tyres or fuel assistance, etc. While the value of such an add-on may differ between insurers, a uniform 18% GST applies to it when you confirm the purchase.

Similarly, for other covers like zero depreciation, consumable cover, Return to Invoice cover, etc., you pay a 18% GST when you purchase these covers.

Also Read: Benefits of Two Wheeler Insurance

What is the Impact of GST on Bike Insurance During Claim Settlement?

When you claim your bike insurance for a reason, you typically do not need to worry about the GST on the repair costs. Typically, most insurers across India handle the claim settlement process via two methods: a cashless and a reimbursement option.

In cashless claims, your insurer directly pays the network garage for the approved repair bill, including GST. For reimbursement claims, a similar principle usually applies, provided all charges are included in your repair bill. As a result, GST generally has a limited direct impact on your claim payout when the settlement is processed correctly.

However, you must note that you typically do not get GST reimbursed on certain exclusions mentioned in your policy documents. You may not get GST reimbursed in case of payments you made for out-of-date eligible parts, components that your chosen policy does not cover, etc.

How to Manage the Impact of GST on Bike Insurance?

As you have seen that the GST implementation increases the premium slightly, you may be looking for ways to manage this extra cost. Here are some useful tips that you may follow:

Choose the Right IDV

When purchasing bike insurance, you may opt for a bigger IDV value to get more protection. However, it not only increases your base premium but also the applicable GST, increasing the cost. Therefore, choosing the right IDV based on your bike’s condition, age and other factors, which is neither high nor too low, strikes a balance between safety and savings.

Opt for Long-Term Policies

To manage the impact of GST better, you may choose to get insurance for a longer term. For example, if you choose a policy for more than 1 year, your premiums stay at the rate when you purchase it. Thus, instead of renewing the policy every year, you can avoid GST implications each time and lower the impact over time.

Use the No Claim Bonus

Ride your bike safely with caution on the road to avoid unprecedented events from occurring, which may require you to claim your policy in a year. As you stay claim-free, depending on your insurer, you can accumulate NCB. This reduces both the base premium and the impact of GST.

Add Required Add-Ons

Add-ons increase your overall coverage, but choosing the ones which are not necessary increases your cost. Therefore, while choosing add-ons, assess which add-ons you actually need and buy them.

Purchase Policy Online

Most insurers in India allow you to buy bike insurance completely online via apps or web portals. Buying online eliminates the requirement of a middleman or intermediary and thus reduces the charges required for their services. With an online purchase, you can save on your overall expenses as you complete your payment.

Also Read: Bike Won’t Start Without Choke - What is the Issue?

Final Word

The impact of GST on bike insurance increases the premium when you buy insurance for your two-wheeler. However, compared to pre-GST norms, this makes tax implementation transparent and makes tax collection easier for the government. Purchasing a long-term policy, choosing essential add-ons, buying online, etc., may help manage the cost.

With Bajaj General Insurance, get the Two Wheeler Package Policy completely online before you get your bike on the road. Download the Bajaj General app to explore plans and buy!

Frequently Asked Questions

Is there an impact of GST on bike insurance when renewing it?

Yes, GST has an impact when you renew your existing policy. Here, the GST gets applied to the complete amount of the premium at 18%.

Does the same amount of GST apply to electric bike insurance?

Yes, when purchasing or renewing the insurance policy for an electric two-wheeler, a 18% GST applies like traditional bikes.

Can I claim Input Tax Credit (ITC) on bike insurance?

Yes, but provided that you are using your bike for registered business purposes. You can claim the GST you paid on premiums through an Input Tax Credit.

Does the engine capacity affect the GST on insurance?

The engine capacity of your bike influences the base premium costs and may be higher for higher capacity engines. However, the GST applicable to that premium remains the same.

Is GST applicable to personal accident cover?

Yes, if you buy it separately as an add-on or buy it while purchasing a third-party or comprehensive insurance, it attracts an 18% GST.

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.