Impact of GST on Car Insurance in 2026: What You Need to Know?

GST has increased the tax on car insurance to 18%, which is higher than the earlier service tax. As a result, GST on car insurance premiums have become slightly more expensive. However, the overall effect has not been very large.

The GST system has also made taxation simpler and more organised across India. Even though you have to pay a little more tax, buying car insurance remains important because it protects you from unexpected financial losses after accidents or vehicle damage.

Read on to know all about the impact of GST on car insurance.

What is GST?

GST stands for Goods and Services Tax. It is an indirect tax that the Government of India introduced on 1 July 2017. Before GST, people paid different taxes such as value-added tax (VAT), service tax, and excise duty.

GST replaced these taxes with one common tax system. It is a destination-based tax, which means the tax is collected in the state where the goods or services are used. This system makes taxation easier for businesses and customers.

It also creates a uniform tax structure across India, reduces confusion, improves transparency, and makes buying and selling goods and services much simpler.

Effect of GST on Car Insurance

GST has replaced the previous service tax system, which had a significant impact on car insurance premiums. Earlier, car insurance was subject to a service tax rate of around 15%.

However, under the new GST regime, the rate of car insurance premiums increased to 18%. This change means that policyholders now pay car insurance GST of 3% more in taxes when they renew car insurance.

While the increase looks small, it can add to your insurance cost over time especially if you renew your car insurance every year.

Even comprehensive policies, like those offered during Maruti insurance renewal, are affected, leading to a higher premium for consumers.

Also Read: How to Find Motor Insurance Details & Insurance Policy Number by Vehicle Registration Number?

How Does GST Impact on Different Types of Car Insurance Policies?

The impact of GST differs depending on the type of car insurance policy selected by the customer. A third-party insurance, which is mandatory under Indian law, has experienced a moderate increase in premiums due to GST.

The comprehensive insurance policies, on the other hand, are more expensive as they offer a vast range of coverage, including own-damage protection and add-on covers.

However, despite an increase in taxes, the comprehensive policies continue to provide better financial security. You can explore comprehensive Bajaj General Insurance policies to get the ideal protection that your car needs.

GST Rate on Own Damage (OD) and Third Party (TP) Car Insurance Premiums

Under the current GST regime of India, car insurance premiums attract an 18% GST rate. This tax is applicable to both Own Damage (OD) premiums and Third Party (TP) insurance premiums.

As a result the final amount paid by policyholders is slightly higher as compared to the pre-GST era, when insurance services were taxed at approximately 15%.

The impact of GST on car insurance can be better understood through the examples stated below:

Reasons why GST on Car Insurance Still Attracts 18% GST

Although GST rates on some vehicles have reduced over the years, the GST on car insurance remains 18%. You pay this amount apart from the base premium. This is irrespective of cover type, such as, comprehensive cover, a third-party cover, or a standalone own damage cover.

For example, if your insurance premium is ₹20,000, you will pay ₹3,600 as GST. So, the total amount becomes ₹23,600. But why does the GST on car insurance remain at 18%?

Insurance Is Service

Car insurance is a contractual service that protects your vehicle against unexpected risks. It is different from life or health insurance as it falls under asset ownership. Therefore, it continues to attract 18% GST under the current tax rules.

Fixed Third-Party Premium

The Insurance Regulatory and Development Authority of India (IRDAI) decides third-party insurance premiums. All insurers follow these rates. Since the premium remains fixed, GST changes do not affect the price, which keeps the cost the same for every vehicle owner.

Applicability of ITC

Only commercial vehicle owners can claim Input Tax Credit (ITC) if they meet GST rules. Private car owners cannot claim this benefit. Therefore, they continue paying 18% GST while purchasing or renewing their car insurance policies.

Government Revenue

Motor insurance is an important source of tax revenue for the government. Even after GST changes in other sectors, keeping 18% GST on car insurance helps maintain government revenue and supports public spending on different services.

Same GST Rate

Car insurance often includes different covers and add-on benefits under one policy. Keeping the GST the same for every part makes billing easier, avoids confusion, and creates a simple process for insurers and policyholders alike.

What are Some Factors to Keep in Mind When Comparing Car Insurance Policies?

When you compare car insurance, consider the premium as well as GST. Also check factors such as coverage, add-ons, CSR, etc. before choosing a policy.

Bajaj General Insurance Limited offers a quick and simple claim process. You can also compare policies online to find the one that suits your needs.

Select Useful Add-ons

Add-ons increase your policy coverage but also increase the premium amount. Choose only the add-ons that match your needs. Popular options include Zero Depreciation Cover, Roadside Assistance, Engine Protect Cover, and NCB Protection for better security.

Compare Coverage Carefully

Do not choose a policy only because it has a lower premium. Compare the protection offered, exclusions, deductibles, and available add-ons. A slightly higher premium can provide much better financial protection when your car suffers damage.

Review Claim Settlement Ratio

The Claim Settlement Ratio shows how many claims an insurer settles successfully. A higher ratio usually means better claim support and faster service. Checking this number helps you choose a trustworthy insurance company with greater confidence.

Which Factors Influence Car Insurance Premiums Beyond GST?

Although car insurance's GST rate contributes to the overall premium amount, there are several other factors that significantly impact car insurance pricing. Knowing these factors can help policyholders make informed decisions while purchasing or renewing insurance.

Vehicle Type and Model

High-performance vehicles and luxury cars have expensive spare parts and therefore attract higher premiums, as repair and replacement costs are higher.

Age of Vehicle

Older vehicles may have lower insured declared values (IDV), but they could also require more maintenance, and this influences the premium calculations.

Driving History

Drivers with a clean driving record and no previous claims often get lower insurance premiums through the No-Claim Bonus benefit.

Geographical Location

Insurance premiums also depend on the city or area where you live. Places with heavy traffic or more accidents often have slightly higher premiums.

Coverage Types

Comprehensive car insurance policies cost more than just basic, third-party policies as they provide broader financial protection.

Also Read: How is Third-Party Car Insurance Premium Estimated?

How to Find The Best Car Insurance Rates?

If you are looking for car insurance online, there are a few things you can do to find the best possible rates:

Compare Different Plans

Always compare car insurance plans from different insurers before making your decision. Check the coverage, exclusions, add-ons, deductibles, discounts, and premium carefully. Comparing plans helps you choose better protection at the right price.

Check Insurer Reputation

Choose an insurer with good customer service and a strong claim settlement record. Also check available discounts, network garages, and cashless repair facilities. A reliable insurance company offers better support whenever you need to raise a claim.

Consider your Needs

Take your specific needs into account while comparing quotes. For instance, if you have an expensive car, you might need to buy a comprehensive insurance policy. All claims are processed according to the terms and conditions of the car insurance policy.

Watch Out for No-Claim Bonus

One of the best car insurance benefits in a comprehensive plan is the no-claim bonus. If a claim is not filed by you during the policy term, the insurer rewards you with a concession on your premium during the policy renewal.

You can claim concessions up to 50% on your premium for every consecutive claim-free year.  As a potential policy buyer, it is important that you remain vigilant and check the policy document for no-claim bonus. By following these tips, you can find the best possible car insurance for your needs and budget.

Apart from this, car insurance rate also depends on factors such as car type and model, your driving record, age, gender, location, etc. It is essential to consider every aspect to make a proper and informed decision.

How GST on Car Insurance Impacts Customers?

The introduction of 18% GST on auto insurance has a direct impact on new customers as well as on customers opting for renewals. This makes it necessary for them to slightly increase their budget and make appropriate financial planning.

Having said that, it is crucial to always keep your car insurance active to avoid legal penalties and ensure financial protection.

What are Some Ways to Reduce Car Insurance Costs After GST?

Even though GST on car insurance has increased premium costs slightly, there are several ways policyholders can reduce their overall car insurance requirements.

Maintain a No-Claim Bonus

Avoid making any small claims whenever possible. This can help preserve NCB benefits. Policyholders can receive substantial discounts on renewal premiums for consecutive claim-free years.

Choose Add-Ons Wisely

While the add-on covers provide an extra protection, if you select unnecessary add-ons, it will increase your premium. It is advisable to choose features that actually suit your driving habits and motor usage.

Renew Policies on Time

A timely renewal can prevent any policy lapses and avoid an additional inspection or penalty charges. It will also ensure that you enjoy an uninterrupted coverage.

Install Safety Features

Vehicles which are equipped with anti-theft devices and advanced safety systems may also qualify for premium discounts from the insurers.

Compare Insurers Regularly

Insurance providers frequently update their offers and pricing. Hence, you need to make sure that you are comparing policies to better identify deals and coverage options.

Can Businesses Claim GST Input Tax Credit on Car Insurance?

For business entities and corporate fleet owners, knowing the nuances of GST can significantly impact the bottom line. Under the new GST regime, businesses registered under GST may be eligible to claim an Input Tax Credit (ITC) on GST paid for vehicle insurance premiums, provided specific criteria are met.

An ITC is not available for all vehicles. As a general rule, ITC is available for people who fall under the following categories:

Commercial vehicles

Vehicles used for the transportation of goods or vehicles used for transportation of passengers.

Business Operations

The vehicle must be used in course strictly for business. This includes vehicles used for providing taxable services such as:

1. Further supply of such vehicles.

2. Transportation of passengers.

3. Imparting training on driving, flying or navigating such vehicles.

Also Read: What Happens If You Ignore Car Insurance Exclusions?

Final Words

The impact of GST on car insurance plans in India has been mixed. However, there are several things you can do to find the best possible car insurance rates. By following the tips above, you can ensure that you are getting the best possible deal on your car insurance.

Many insurers offer markdowns in your premium for things such as good driving records, safety features, and membership in automotive associations.

Ready to insure your vehicle? Secure your vehicle today with Bajaj General Insurance car insurance plans.

FAQs

Can I claim GST on car insurance?

Unless the car has a 13 seater capacity and is used for business purposes you cannot claim GST on car insurance.

Is GST applicable on car insurance?

Yes, GST is applicable on car insurance premiums. Currently, the GST rate on car insurance is 18%, which is charged on the total premium amount, including any add-ons or riders.

Why is GST charged in insurance?

GST is charged on insurance as it is considered a service. The implementation of GST aims to create a uniform taxation system across all services, including insurance, which previously fell under the service tax regime.

What is the rate of GST on the insurance commission?

The GST rate on insurance commission is 18%, similar to the rate applied on insurance premiums. This rate is applicable to the commission earned by agents for selling insurance policies.

What is the TDS rate for car insurance?

The TDS (Tax Deducted at Source) rate on car insurance payments is generally 2% if the payment to an insurance company exceeds ₹30,000 in a financial year. However, the rate may vary depending on specific cases and exemptions.

* Standard T&C Apply 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.