Car insurance provides financial coverage to your four wheeler against unforeseen risks, such as own damages and third party liabilities, resulting from your car. Third party liabilities arise when your car is responsible for causing property damages or physical injuries to third parties. In fact, buying third party insurance is mandatory for all cars in India no matter how rarely you use your car. If you do not insure your car, you may be fined for violation of the law.
When you buy something, you need to pay GST or Goods and Services Tax. Similarly, when you buy a car insurance policy, you need to pay the applicable GST on it.
Are you wondering how much GST is applicable on your car insurance policy?
Let’s find out.
But first, let’s understand everything about GST.
GST or Goods and Services Tax is a single indirect tax, which is levied on the sale of goods and services across India. It is a unified system of indirect taxes that replaces as many as 17 indirect taxes, such as value added tax (VAT), service tax, central sales tax (CST), luxury tax, central excise duty, etc., levied by the central and state governments.
The GST came into existence on 1st July 2017 after the Goods and Service Tax Act was passed in the parliament in March 2017. Since then, any tax levied by the central or state government on the sale of goods and services is converted into GST.
The GST comprises of two parts - CGST and SGST. In the case of CGST or Central GST, the tax amount is collected by the central government. On the other hand, the SGST or State GST is collected by the state government where the goods and services are being sold. In addition, the central government also collects IGST or Integrated GST if there is an exchange of goods and services between states.
As per the GST Act, fixed tax rates are followed on the sale of goods and services. These include a GST of 0%, 5%, 12%, 18% and 28% depending on the type of goods and service you buy. For example, you need to pay a GST of 28% while buying a car.
However, you don’t just need to pay GST at the time of buying your car but also while buying your car insurance policy.
Every car insurance policy attracts a GST because you are buying a service. However, the GST amount is included in your premium. Thus, the car insurance premium that you are paying is inclusive of the applicable GST on your motor insurance policy.
At present, a GST of 18% is applicable on buying a car insurance policy. This is 3% higher than the pre-GST era when separate indirect taxes were applicable. At that time, a tax of 15% applied to car insurance, which comprised of 14% as service tax and 0.5% each as Swachh Bharat Cess and Krishi Kalyan Cess.
But does this increase in the tax on car insurance impacts your premium in any way?
Unfortunately, it does.
The increase in the applicable tax on car insurance from 15% to 18% GST does impact your premium adversely. The motor insurance company has passed on the GST amount to the car owner. As a result, the 3% hike in the tax amount has led to an increase in the overall car insurance premium, which the car owner has to bear.
Let’s understand this with the help of an example.
Suppose, your car insurance premium is Rs 10,000. Before the introduction of GST, a 15% tax was applicable on the premium, which comes to Rs 1500. Thus, you needed to pay a total car insurance premium of Rs 11,500. But after the GST Act came into existence, a GST of 18% applies to car insurance premium i.e. Rs 1,800. So now, you need to pay a total car insurance premium of Rs 11,800. Your total car insurance premium increases by Rs 300 in this example.
Thus, you are paying a higher car insurance premium after the advent of the GST regime.
However, motor insurance companies are compensating for the hike in car insurance premium by offering additional coverage and benefits. For instance, a few motor insurers are offering roadside assistance services as part of the base policy and not just as an add-on cover.
A lot of people wonder if they can add their GST number to their car insurance policy.
A GST number refers to a 15-digit unique GST identification number (or GSTIN), which is allotted to every person registered under GST. The number is based on your PAN number and can be used to file your GST returns.
The GST number is mostly obtained by business entities, dealers and suppliers who are eligible tax-payers. If you have a GST number, you can claim returns for the paid GST.
Now coming back to the original question. - Can you add the GST number to your car insurance policy?
Well! The answer is Yes.
You can add your GST number to your car insurance policy. All you need to do is contact the customer care of your motor insurance company or insurance broker to get the GST number added to your car insurance policy.
Summing It Up
The introduction of the GST Act has made the whole indirect tax system more simple and unified. But when it comes to four wheeler insurance, it has led to an increase in the overall car insurance premium. The only silver lining is that you can claim the GST amount by filing the GST returns. In case you have a GST number, you must get it added to your car insurance policy to file your returns.
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