Revised GST Rates and Their Impact on Car Insurance Premiums
The GST Council, in its 56th meeting, revised the Goods and Services Tax (GST) rates.
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New Car GST Rates in 2025
The Indian government has made major changes to the GST regime, overhauling the 28% GST on four-wheelers, which has resulted in a reduction in car prices across different categories. Earlier, four-wheelers faced a compensation cess ranging from 1% to 22%. However, with GST 2.0, the cess has been removed from all vehicle types, excluding luxury cars or those with larger engines.
Here are the new GST rates for cars, which are effective from 22nd September 2025:
| Vehicle Type |
Old GST Rate + Cess |
New GST Rates |
| Small Petrol Cars less than 4 metres, up to 1200 cc |
29% (28% GST + 1% cess) |
18% |
| Small Diesel Cars less than 4 metres, up to 1500 cc |
31% (28% GST + 3% cess) |
18% |
| Mid-Size Cars or SUVs above 4 metres or over 1500 cc engines |
Up to 50% (28% GST + up to 22% cess) |
40% |
| Electric Vehicles |
5% |
5% |
Impact of GST on Car Insurance Premiums
While for existing vehicle owners, there is no impact of revised GST rates on car insurance premiums. They will still continue to pay 18% GST during renewal. But, new car buyers might see lower premiums due to recent reductions in GST. Since the premium is calculated based on the IDV (the current market value of the car), IDVs of some cars will be reduced, subsequently decreasing car insurance premiums.
Have a look at how the revised GST rates will impact different types of car insurance:
- Third Party Car Insurance: The premium for third party insurance will remain unchanged since it is regulated by the IRDAI and is based on the car's engine or battery capacity, regardless of the make & model.
- Comprehensive Car Insurance: Since the own-damage component of four-wheeler insurance might decrease due to reduced IDV of a car, the overall premium amount of comprehensive car insurance may also see a drop.
Besides IDV, there are certain other factors that affect premium prices of car insurance. They include:
- Vehicle Age and Model: While older vehicles usually have lower car insurance premiums, luxury or high-end cars incur higher premium costs.
- Engine/Battery Capacity: Car insurance premiums for vehicles with larger engines or EVs with higher battery capacities are considerably more.
- Add-on Covers: Opting for add-ons like the zero depreciation cover, return to invoice, roadside assistance, engine protection cover, etc., also lead to increased four-wheeler insurance premiums.
- Registration Location: If you reside in an accident-prone or traffic-dense area, you might face higher premiums because of higher risk of accidents.
- No Claim Bonus (NCB): NCB in car insurance is a discount that insurers provide to policyholders for claim-free policy years. Thus, NCB also affects the car insurance premium amount.
In Conclusion
The GST 2.0, w.e.f. September 22, 2025, has restructured taxation on four-wheelers into two slabs- 18% for small cars and 40% for larger luxury vehicles. The GST for EVs is still 5%. If you are planning to buy a new car, do not forget to secure it with comprehensive car insurance. It will offer the necessary coverage against road accidents, theft, fire, or natural disasters.
