The Goods and Services Tax (GST) is an indirect tax that replaced multiple central and state levies across India. It applies uniformly nationwide to goods and services. It includes financial products like car insurance, where a standard 18% GST is charged on the base premium.
When you’re buying car insurance, it’s really important to understand how the GST rate works. This is because it affects the total amount you pay for your premium. A lot of people don’t pay much attention to this, but it’s a big part of the final cost. You always pay the car insurance premium along with the GST.
This article will explain how to calculate the GST rate on car insurance. We’ll also go over the current GST rate, which is 18%, and how it applies to different types of policies. These include third-party insurance, standalone own-damage insurance, and comprehensive car insurance.
Table of Contents
- How GST on Car Insurance is Calculated
- Formula for Calculating GST on Car Insurance
- Example Calculation
- Current GST Rate on Car Insurance Premium
- GST on Add-ons and Riders
- GST on Policy Renewals
- GST on Car Insurance Before and After GST Implementation
- Comparison of Tax Rates
- Types of Car Insurance and Applicable GST
- Third-Party Car Insurance
- Standalone Own-Damage Policy
- Comprehensive Car Insurance
- Impact of GST on Car Insurance Premiums
- Example Comparison
- GST on Car Insurance for Electric Vehicles
- Is GST claimable or Refundable on Car Insurance
- Individual Car Owners
- Business and Commercial Vehicles
- GST on Car Insurance Claims
- Cashless Claim
- Reimbursement Claim
- Conclusion
- FAQs
How GST on Car Insurance is Calculated
You can calculate the GST on car insurance using the total premium amount that the insurance company charges. This includes the basic premium and any extra features or riders that you choose. The GST rate is 18%, and this is added to the total premium before you make the final payment.
Formula for Calculating GST on Car Insurance
Total Premium Payable = (Base Premium + Add-ons) + 18% GST
Example Calculation
Base Premium: ₹10,000
Add-ons: ₹2,000
Total Premium Before GST = ₹12,000
GST (18%) = ₹2,160
Total Premium Payable = ₹14,160
This example shows how GST significantly contributes to the total cost of a car insurance policy. The higher the base premium and add-ons, the higher the GST amount that will be added to the final payable amount.
Current GST Rate on Car Insurance Premium
After the announcement of GST 2.0, people were elated to know that the GST on health and life insurance has been dropped. There were questions on how GST applies to car insurance premiums after the reform. As of 2026, the current GST rate on car insurance remains the same. Standard 18% GST applies to all types of policies, including add-ons and even renewals. This GST rate remains the same and does not change as per the state or insurer.
GST on Add-ons and Riders
GST applies not only to your base premium but also to your add-ons and riders. Add-ons and riders enhance your policy experience and provide you with better coverage, so GST applies to this as well. If you have multiple add-ons, then it might impact not just your base premium but the total amount of GST you pay.
Zero Depreciation – The insurer covers the entire damage or repair cost without depreciating any cost for wear and tear.
Road Assistance– This add-on provides coverage for emergency repair services, which include flat tyre, car breakdown, and towing.
Engine Protection – it offers coverage to damaged engine due to water ingress or oil leakage.
Return Invoice – In case of heavy loss, especially if the loss amount exceeds the IDV in terms of theft or total damage, the insurer covers the original invoice amount, including taxation and registration.
GST on Policy Renewals
Policy renewals are not exempt from GST. Just like your premium and add-ons, the standard GST rate of 18% applies to policy renewals. The premium amount might change annually, depending on your car’s IDV, but the GST rates do not change even if you are renewing with the same insurer.
GST on Car Insurance Before and After GST Implementation
Before India introduced the Goods and Services Tax (GST), the government taxed insurance services under the service tax regime. Insurers applied a service tax of around 15% on car insurance premiums, which affected most insurance products across the country.
After the government implemented GST in July 2017, it created a unified indirect tax system. Under this system, the government placed insurance services, including car insurance policies, in the 18% GST slab.
Comparison of Tax Rates
Before GST
Service Tax: 15%
After GST
GST: 18%
Although the tax rate increased slightly from 15% to 18%, the GST framework simplified the overall taxation structure by replacing multiple indirect taxes and establishing a standardised tax system across India.
Types of Car Insurance and Applicable GST
There are three types of car insurance policies in India, and the base premium may differ depending on the policy chosen by the policyholder. Though the premiums may vary, the GST rate on all these policies remains the same. Below is a breakdown of different policies and the GST rate on car insurance premiums.
Third-Party Car Insurance
This plan covers the damage caused to a third-party vehicle, excluding yours. This insurance is considered mandatory in India by the Motor Vehicles Act. It covers damage and injury caused by accidents to a different vehicle. The base premium for this type of policy is fixed across insurers as laid down by the Insurance Regulatory and Development Authority of India, based on your car engine capacity.
GST applicability – The base premium fixed by IRDAI and the GST of 18% will be the total payable amount for third-party insurance.
Standalone Own-Damage Policy
This type of policy, as the name suggests, covers the damage or repair cost of the insured vehicle. It covers theft, accidents, fire, and damage caused by natural disasters. Own-damage policy is usually purchased when a policyholder already has an active third-party insurance coverage. By purchasing this policy, you can be legally compliant and also have a customised financial protection net for your car.
GST applicability – A separate GST of 18% applies to this policy, and if you have add-ons, the total amount payable can be higher compared to the third-party policy.
Comprehensive Car Insurance
This insurance combines both third-party liability and standalone own damage insurance, acting as a single package that offers coverage to your car and a third-party vehicle. The premium amount is a consolidated amount that is subject to a GST of 18%.
Premium – Unlike third-party insurance, the premium amount in a comprehensive insurance plan is calculated depending on your IDV. And so the total amount payable, including premium and the GST, can be higher than the third-party plan.
Add-ons – You can include add-ons and riders in a comprehensive car insurance plan, so the GST rate on this plan with the add-ons might be slightly higher.
Impact of GST on Car Insurance Premiums
GST has a direct impact on the final cost of car insurance because it is applied to several components of the policy. Since the GST rate on car insurance is 18%, it increases the total premium amount paid by the policyholder.
GST affects car insurance premiums in the following ways:
Base Premium: GST is applied to the base premium charged by the insurer for providing coverage.
Add-ons and Riders: If policyholders choose additional coverage such as zero depreciation, engine protection, or roadside assistance, GST is applied to these add-ons as well.
Policy Renewals: GST is also charged when renewing a car insurance policy, meaning the renewal premium will include the 18% GST rate.
Example Comparison
If the base premium of a policy is ₹8,000 and add-ons cost ₹2,000:
Total Premium Before GST = ₹10,000
GST (18%) = ₹1,800
Final Premium Payable = ₹11,800
This demonstrates how GST contributes to the overall premium cost and why understanding its impact can help policyholders estimate their insurance expenses more accurately.
GST on Car Insurance for Electric Vehicles
Electric vehicles (EVs) are becoming increasingly popular in India due to government incentives and growing environmental awareness. However, when it comes to insurance, EV policies are also subject to the same GST rate of 18% as conventional fuel vehicles.
While the GST rate remains the same, the premium amount for electric vehicle insurance may differ. EVs often have higher vehicle values due to advanced battery technology and specialised components, which can lead to higher Insured Declared Value (IDV) and consequently higher insurance premiums.
Because GST is calculated as a percentage of the premium amount, a higher premium for EV insurance may also result in a higher GST amount in the final payment.
Despite this, many insurers offer specialised EV insurance policies that include coverage for battery protection and EV-specific risks.
Is GST claimable or Refundable on Car Insurance
The claimability of the GST amount depends on the purpose for which the car is used by the policyholder. It differs if you are an individual car owner or a business car owner.
Individual Car Owners
The GST paid by the individual car owner is considered non-refundable as the vehicle is used for personal purposes by the policyholder. It is mentioned in the GST Act 17(5) that the motor insurance on the car used for personal purposes cannot claim or ask for a GST refund. If the policyholder decides to cancel the policy or to make mid-term changes, only the base premium will be refunded as per the policy terms. The GST amount is generally non-refundable. While health insurance plans can have a tax deduction under section 80 D, car insurance does not have any deduction option. So, the GST paid is generally non-refundable for individual car owners.
Business and Commercial Vehicles
GST rate on car insurance used for business or commercial purposes may be claimable as Input Tax Credit. ITC is only allowed if the vehicle is used for business purposes, such as parcel or passenger services, and driving training. The prerequisite is that the business must be GST registered, and the insurance document must mention the GST details. However, ITC is not generally applicable to cars used for personal purposes by the business owners or employees.
GST on Car Insurance Claims
GST is generally not charged on claims payout, but it depends on whether you make a cashless claim or a reimbursement claim.
Cashless Claim
When a vehicle undergoes a repair process, the repair invoice usually contains a specific GST rate added to the payment. When the insurer has networks, they pay directly to the garage without involving the policyholder, called cashless claim payment. The insurer pays the amount, including the GST added for repair and labour charges, as per the policy terms.
Reimbursement Claim
It is when the policyholder pays directly to the garage, including the GST on repair and labour services, and then submits a claim to the insurer. The GST amount is reimbursed only to the extent allowed in the policy. GST on repair bills on cars used for business purposes can be claimed as Input Tax Credit if the business is GST registered.
Conclusion
Understanding the GST rate on car insurance helps policyholders better estimate their insurance costs. Currently, a standard GST of 18% applies to all car insurance policies, including third-party, standalone own-damage, and comprehensive plans. The tax also applies to add-ons and policy renewals. While individual car owners cannot claim GST refunds, businesses using vehicles for commercial purposes may be able to claim Input Tax Credit under certain conditions.
FAQs
1. Should I pay GST when I repair my car after an accident?
Yes, GST applies to repair services, including labour services. The repair service invoice will have the GST details.
2. Can individual car owners claim GST paid on repair bills?
No, Individual car owners are not eligible for Input Tax Credit, so they usually cannot claim GST paid on repair bills.
3. Have the GST rates on care insurance been reduced to 0% like health insurance?
No, as per the GST 2.0 reform, the GST on car insurance remains the same. It is currently 18% on car insurance.
4. Does a No Claim Bonus reduce my GST?
GST is applied to the base premium, and if you have a No Claim Bonus, then your premium amount will be discounted, thereby reducing the total amount payable, including GST.
5. What happens to the GST I paid if I sell my car and transfer my insurance?
If you sell your car and transfer the insurance to the new owner, the GST that has already been paid is generally not refunded or claimed.