Goods and Services Tax, also referred to as GST, is the biggest tax reform in independent India. The Goods and Services Tax Act was passed in the Parliament in March 2017 and it came into effect on 1 July 2017.
GST is a single tax that is levied on the supply of goods and services. It has subsumed the Central Excise Law, VAT, Service Tax Law, Entry Tax, etc. GST is expected to bring together the economies of states and improve the growth of the nation. It is a destination-based tax that is charged at every point of value addition. The final consumer will only bear the GST charged by the last goods/services provider in the supply chain.
GST has three components, i.e., Central GST, State GST, and Integrated GST. Currently, GST is levied at fixed rates of 0%, 5%, 12%, 18%, and 28% on all goods and services. Home appliances and lifestyle products have become more expensive after GST implementation. On the other hand, consumer goods and automobiles have seen a price drop. The introduction of GST has had significant impact on the insurance industry. Since the insurance sector falls under the higher tax slab, insurance policies have become slightly more expensive from the customer’s perspective.
Then and Now:
During pre-GST times, insurance premium was inclusive of service tax. Now that the service tax has been replaced by GST, it is important that you understand the difference in the cost of insurance. These details have been tabulated below:
|Product type||Applicable on||Service tax + cess before GST||Rate of taxation after GST implementation|
|Vehicle insurance, including car insurance and two-wheeler insurance||Premium payable||15%||18%|
|Insurance riders||Rider premium payable||15%||18%|
For life insurance policies there are varying rates of charging GST. For instance, endowment plans have high GST rates charged on the first year premium. For the subsequent premiums, the rate of GST is lower. Similarly, for Unit Linked Insurance Plans (ULIPs), the GST is charged only on the premium excluding the investment amount.
However, for vehicle/motor insurance plans, the rate of taxation is fixed at 18% after GST implementation. This is, effectively, a 3% increase from the pre-GST era. The increase in the rate of taxation is borne by the policyholder in the form of a higher premium. This implies that there is bound to be stiff competition in the motor insurance market to lure customers. This has resulted in attractive offerings from insurers such as more effective coverage, excellent customer service, and discounts on online purchase of insurance. Many insurance companies are also banking on their cashless garage facility to retain customers. This service is a highly desirable one, as it proves to be very helpful when the policyholder is faced with a difficult situation such as an accident.
In a nutshell, the implementation of the GST regime has hiked the price of car insurance considerably. However, it is not possible to drive an uninsured vehicle in India. It is, hence, advisable to compare car insurance between insurance providers and opt for one that is best suited for your needs. So, you should not consider the premium as the sole criterion for the purchase of a policy. Take into account all the benefits and exclusions offered by the myriad of insurance solutions in the market and settle on one that offers you maximum protection in a cost-effective manner.
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GST Update: GST of 18% is applicable on car insurance effective from the 1st of July, 2017