The Central Goods and Services Act of 2017, generally referred to as the GST, is one of the significant tax developments that occurred after India gained independence. The act will substantially impact a wide range of industries, including the motor insurance industry. The change had a big impact on both the federal and state tax systems. A product would be subject to several taxes that consumers were unaware of before the advent of the GST.
The Goods and Services Tax merged several indirect tax rates (GST). Up to 17 federal and state taxes and fees were combined into one tax system through the GST. Motor insurance premiums are subject to GST because they fall under the services category. The cost of the car/bike increases along with the GST percentage for insurance.
GST significantly impacts many facets of life, from buying toothpaste to investing in a car, buying a house, or even insuring our lives.
What is GST and How Does it Work?
In India, all commodities and services are subject to the multistage indirect tax known as GST, or Goods and Services Tax. It was established to replace all indirect taxes now imposed on goods and services in India, including the value-added tax (VAT), service tax, excise tax, and others. The Goods and Services Tax Act was passed by the parliament on March 29, 2017. It became active on July 1st, 2017.
As previously stated, GST has taken the place of all taxes imposed by the federal and state governments, including VAT, service taxes, excise taxes, entertainment taxes, luxury taxes, etc. All of these taxes have been combined into a single tax, with the State GST and the Central GST being its two components. For instance, if you pay a GST of 10% on a given service, the state GST will be 5% and the central GST will likewise be 5%.
As a result, you will pay one tax amount that is far less than before for any items or services you purchase. According to a new regulation adopted by the Central Government of India, paying the service tax, if it is charged by any restaurants, hotels, or other establishments, is voluntary. In most areas, the cost of commodities has decreased, but services have increased. The pressure on customers in this area has, however, largely decreased.
Example of Post GST On Motor Insurance
Let’s take an example of the effects of GST on an average bike owner Mr. Akash Malik, who will now have to pay a new amount. Let’s take a look at the example.
Let’s say your motorcycle insurance premium is Rs. 4,000. You would now be required to pay a premium of Rs. 4600 based on the previous tax rate of 15%. Due to the 18% GST that was imposed, you would need to pay Rs. 4,720.
How Does GST Impact Motor Insurance Premiums?
The mass market would benefit from the modification of the two-wheeler tax rates.
- The taxes on bikes and scooters have been divided into categories based on engine size since the implementation of the GST.
- The GST rate on motorcycles and scooters with engines smaller than 350 CC will now be 28%, down from 30% previously.
- In addition, two-wheelers with engines larger than 350 CC will now be required to pay 31% GST, a 1% increase from the previous rate.
Here is the effect of GST on cars
Vehicles are subject to a different rate of GST than life insurance policies. For instance, the GST assessed on an endowment plan is higher in the initial year and lower for premiums paid after that. But the GST rate for car insurance premiums is set at 18%. This indicates that since the implementation of GST, your tax on the cost of four-wheeler insurance has increased by 3%.
If a car insurance premium is Rs. 10,000, then the policyholder would now have to pay Rs.11,800 instead of Rs.11,500 with previous 15% GST.
Can We Add a GST Number In Motor Insurance Policy?
Yes, you can include the GST number in motor insurance coverage. Simply get in touch with customer care, and your motor insurance will be updated to include your GST number.