Importance of GST in Car Insurance Policy
The Goods and Services Tax, said to be India's largest tax reform for the 21st century, is a tax imposed on goods and services. It is a destination-based tax, meaning that it is charged at the point of the final destination. GST affects all businesses, including insurers, and has resulted in changes in premiums and rates changes. Here is a brief overview of the impact and rate changes of GST on car insurance.
Car insurance falls under the umbrella of general insurance and can be of two types:
1. Third-party liability car insurance:
As per the Motor Vehicle Act, 1988, third-party liability is mandatory for every motorised vehicle that runs on Indian roads. Under this policy, if while driving the insured car, you accidentally cause damage/ injury to a third party, the damages will be covered. However, your own damages would not be compensated for.
2. Comprehensive car insurance:
As the name suggests, a comprehensive car insurance policy offers more comprehensive coverage. Along with third-party liabilities, it also offers coverage for its own damages. With a comprehensive car insurance policy, you also have the option to include add-ons to your base plan. These add-ons help you further enhance the coverage.
Depending on a long list of factors, different sectors levy different rates of GST. For car insurance, the GST rate is 18%. Before the introduction of GST, service tax and cess were levied on car insurance, which came out to be 15%. There has thus been an addition of 3%, which has to be borne by the policyholder.
Before GST ( service tax + cess )
Rate after GST
Let us understand this with an example. Suppose your car insurance policy was available at INR 10,000, with a service tax of 15%; you would have to pay INR 11,500. However, with the introduction of GST, this 15% of service tax + cess has been replaced with 18%. The premium for your car insurance would not cost you INR 11,800, which is a 3% or INR 300 increase.
Thus, the impact of the increase in the GST rate has effectively increased the overall car insurance premium. Still, with this rise in premiums, insurers have the motivation to bring innovative products, better customer service and better features for the benefit of the customers. But since car insurance is mandatory to ply your vehicle on Indian roads, you need to have a valid car insurance plan, even if the rate increases. So, when you choose a plan, check all parameters and then choose the one which best suits your needs. Compare the plans, and don’t forget to add the discounts available to get the cheapest premium.
The Goods and Services Tax (GST), which came into force on 1st July 2017, caused a buzz among car insurance customers. The 3% increase has brought an increase in car insurance premiums. Based on tax rates and some other parameters, your car insurance premium would have undergone changes. Make sure you check the same with your insurance provider.
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