The Goods and Services Tax (GST) was introduced and implemented in India from July 1, 2017.
GST is the largest tax reform in India since the nation’s independence in 1947.
GST is a value-added tax levy on goods and services that are rendered for the consumption by the consumers. GST has to be paid by the consumer when he/she uses a service or buys a good where the GST is applicable.
GST can be of two kinds; The State and The Centre. With the implementation of GST, it has become easier to do business with the existing parties and has also become the entry point for new businesses in India due to the removal of cross-border barriers. With more number of businesses, the tax compliances gets enhanced and increases the total revenue for both state government as well as central government, resulting in a 2% increase in the nation's Gross Domestic Product (GDP).
The GST for the insurance sector is set at 18%, which is a 3% hike when compared to the earlier 15% tax that was applicable, hence directly impacting the consumer’s insurance premium.
Car insurance is an agreement between the insured and the insurer where the insurer promises to cover the policyholder’s liabilities at the time of a mishap in exchange for a fixed premium. Car insurance plans are broadly classified into two, third-party car insurance cover and comprehensive car insurance cover. A comprehensive car insurance cover protects you from third-party liabilities as well as own damage liabilities that you incur at the time of a mishap. A third-party liability plan covers third-party liabilities alone that one incurs at the time of a mishap.
The GST at 18% means an increase in the car insurance premium, making it expensive for a consumer.
Before the GST was introduced, car insurance premiums were inclusive of service tax but now, GST has replaced the service tax.
The table given below exhibits the difference in insurance premium calculation before and after the introduction of GST:
|Product type||Applicable on||Service tax + cess before GST||Rate of taxation after GST implementation|
|Vehicle insurance, including car insurance and two-wheeler insurance||Premium payable||15%||18%|
|Insurance riders||Rider premium payable||15%||18%|
Due to the increase in the rate from 15% to 18%, the policyholders will face an increase in the car insurance premium payable at the time of policy purchase or renewal.
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