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Impact of GST on Car Insurance

Team AckoSept 18, 2025

The genesis of the Goods and Service Tax (GST) began in 2000 when a committee was set up to design and formulate the policy on the new form of indirect tax. After due diligence, the GST Act was passed in April 2017 and is officially effective from 1 July 2017. The primary objective of GST is to unify several indirect tax regimes in India. With the single form of the tax structure for sale of goods and services, it replaces as many as 17 central and state taxes. Recently, the GST rates have been revised. Let’s take you through these changes in the section below.

Impact

Contents

GST on Car Insurance in India
What is GST?
GST & Insurance:
Impact of GST on Car Insurance Premium in 2025
Car Insurance Policy Compare:

GST on Car Insurance in India

Car insurance comes under the services category of the GST. The sale of goods and services is charged at fixed rates of 0%, 5%, 12%, 18% and 28% under the GST regime. As for the GST on car insurance in India, the rate is fixed at 18%. But, as per the latest 56th Meeting of the GST council, the GST rates have been revised. The GST has been reduced to zero for health and life insurance, however, there has been no significant changes in car insurance sector. The existing car insurance policyholders will still have to pay 18% GST. However, new car owners, might end up paying lower premiums. This is mainly because with reduced GST, the IDV will decrease and also the car insurance premium.

What is GST?

During the pre-GST era, there were several types of taxes on the sale of goods and services. This included Central Excise Duty, Interstate Sale of Goods (CST), Service Tax, Value Added Tax (VAT), Entry Tax, Luxury Tax, Purchase Tax, etc. With multiple indirect taxes, the government decided to levy a single or a unified system of collecting indirect taxes.

Hence, any tax being levied by the Centre or the State government on the supply of goods or services will be converted into GST. This unified tax regime is a dual charge where the Central Government will charge and collect Central GST (CGST) while the respective State Government levies and collects State GST (SGST) on the supply of goods and services between states. Also, the Central Government charges and collects the Integrated GST (IGST) on the exchange of goods and services between states.

GST & Insurance:

There are different types of insurance plans available in the country. They are categorized as below:

Life Insurance:

This type of insurance is further classified into Term Insurance, Endowment Plans and Unit Linked Plans.

General Insurance:

This type of insurance is further divided into Health Insurance, Car Insurance and Two-Wheeler Insurance.

The relationship between GST and Insurance is the premium and the Risk Factor component. While the premium is exempted from income tax, the Risk Factor is taxable as per the current taxation regime. Hence, the GST has increased the premium due to the increase in taxation by 3% i.e. from 15% of the previous taxation system to 18% as per the GST.

Impact of GST on Car Insurance Premium in 2025

All goods and services offered to attract the GST in India. The car insurance premium is one of them. The pre-GST era had several indirect taxes such as sales tax, service tax, excise duty, and other state-specific taxes. Merging all these indirect taxes has led to the introduction of the GST, a single tax slab.

An insurance provider will pass on the GST on vehicle insurance premium to customers, and they will also take into consideration the administrative costs before fixing the premium for the insurance policy. Before GST was introduced, the service tax on car insurance premium was 15% (14% as service tax, 0.5% as Krishi Kalyan cess and 0.5% Swachh Bharat Cess); however, with the GST being implemented, the tax is 18% on car insurance premium. By increasing the tax, the premium on car insurance is bound to be higher compared to the pre-GST era.

With the latest GST reform in September 2025, car insurance policyholders are expected to pay the same 18% GST on their existing policy or renewals. While, new car owners might pay lower premium as the reduced GST will affect the IDV and the overall premiums.

Car Insurance Policy Compare:

With the implementation of the GST in car insurance policies, the immediate effect is the increase in the premium you pay towards the policy. Ensure you compare car insurance policies and choose the right Add-ons to get a low car insurance premium. Below table offers an insight into GST rates on different types of insurance policies:

Type of Insurance Policy	Pre-GST Rate	GST Rate	GST Rates in 2025 (w.e.f. 22nd September)
Car Insurance	15%	18%	18%
Term Insurance	15%	18%	0%
Health Insurance	15%	18%	0%

Also, read: Pay as You Drive Car Insurance

In conclusion, GST has increased the car insurance premium; however, protecting you from financial losses due to an accident is a wise choice. Also, Third-party liability policy is mandatory as per the Motor Vehicles Act. That said, the Third-party liability plan does not cover Own Damage. Hence, if you are looking for a complete cover for your vehicle, Comprehensive car insurance protects both you and the third-party.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please go through the applicable policy wordings for updated ACKO-centric content and before making any insurance-related decisions.

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