Goods and Service Tax, or as commonly known as GST, was a much-awaited tax reform in India. GST includes almost everything traded or offered as a service and hence is a positive step in simplifying the tax levy on everyday items. This also includes bike insurance.
Prior to the implementation of GST, there were several taxes that accumulated, whose burden the end-consumer had to bear. The same was the case with bike insurance policies. But now, with GST having been introduced from 01st
July 2017, it has simplified the tax that gets levied on all goods and services. When you purchase two wheeler insurance
, it is a service offered by insurance companies reimbursing the damages to your bike. Hence, it is included under the purview of GST.
GST on bike insurance
The GST council decides on the applicable rates for various products and services. Since bike or two wheeler insurance is a service, the GST rate for bike insurance premiums is 18%.
The GST regime has five different rates of 0%, 5%, 12%, 18% and 28%, for different kinds of products and services. The erstwhile service tax rate for insurance products that stood at 15% has definitely increased the premium amount by 3%. Please note that GST is subject to change as per tax laws.
This can be explained by an example. Say you purchase a bike insurance policy prior to the implementation of GST. The premium for a third-party policy which cost you around ₹1000 had a tax rate of 15% and thus, totalled ₹1150. But since the GST reforms are introduced, the same third party bike insurance
policy of ₹1000 now will cost you ₹1180 due to the applicable 18% tax rate.
But, when you purchase two-wheeler insurance online, the insurance companies are able to compensate for such an increase in tax rate by way of markdown in your bike insurance price
. This way, the net effect of increased taxation can be offset by concessions offered when you purchase online insurance plans. This is possible due to the elimination of middlemen, as the insurance policies are directly sold to you by the insurance company.
Despite the impact of GST on two wheeler insurance, it is crucial to select the right type of insurance plan. There are two types from which you can choose from - a third-party cover and a comprehensive cover. A comprehensive plan offers all-round coverage for own damages as well as third-party legal liabilities. The same is limited only to third-person legal liabilities in case of third-party coverage. Hence, it is also called a liability-only policy.
For liability-only policies, the premiums are defined by the Insurance Regulatory and Development Authority of India (IRDAI) and GST of 18% is levied over and above such a premium rate. The same is the case in comprehensive plans where the entire premium, i.e., third-party premium as well as own damage premium in the aggregate, are charged 18% GST. While the GST does impact the cost of your insurance coverage, it should not be the deciding factor based on which a policy is bought. You must also consider the policy features along with the inclusions and exclusions before finalising a purchase.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read the sales brochure/policy wording carefully before concluding a sale.