The Goods & Services Tax (GST) council met in December 2018 and reduced the GST rates of several items under its ambit. The GST rate for certain items were slashed to 12% from the previous 18%. This is also applicable to car insurance policies. Therefore, the prices of Third-party Car insurance premium will be comparatively lesser. This is good news for the policyholders as they will have to pay less for insuring their cars.
Here are the things to know about GST reduction with respect to third-party car insurance
The Goods & Services Tax (GST) is a unified indirect tax that came into existence in the year 2017, replacing multiple taxes that were levied by state governments. The GST has several slabs and most of the goods are in the 18% tax range. As per the recent ruling, the GST rate for Third-party Car Insurance has been reduced from 18% to 12%.
What is Third-party Liability Car Insurance
Vehicle insurance has two basic components: Third-party Liability and own damage. Buying a Third-party vehicle insurance is a mandatory requirement. It is designed to cover financial losses of parties affected by a car accident. However, it does not cover own damage (of the insured car). For that, you will have to purchase a Comprehensive plan (including Third-party cover).
GST and Car Insurance
Insurance Regulatory and Development Authority of India (IRDAI) is the apex body when it comes to insurance in India. Third-party vehicle insurance rates are stated by the IRDAI. All insurers charge the same amount for Third-party policies by applying the GST rate over the stated cost of the policy. Thus, now that the GST rate is reduced, it will cause a corresponding reduction in the final Third-party insurance rates as well.
There have been several important rulings in the recent past regarding car insurance. The most prominent one being the introduction of long-term insurance for new four-wheelers. This means car owners have to shell out more money at one go than they would’ve in case of an annual policy. However, a long-term policy is comparatively affordable in the long run.
Another ruling was with respect to keeping up with the Pollution norms. One must have the car’s Pollution Under Control certificate (PUC) updated to renew car insurance. These two rulings coupled with the reduction in the GST rate are productive from the insurer’s as well as the policyholder’s point of view.
The authorities have been trying a lot to ensure that all vehicles that ply on Indian roads are at least covered under the basic Third-party Car Insurance policy.
Buy Car Insurance Online
If you are a price-sensitive car owner, then you can opt for a basic Third-party policy. However, if you want to opt for an extensive cover, then it is suggested to opt for a comprehensive plan. It costs more than the Third-party policy but offers enhanced insurance coverage. You also have the option of purchasing Add-on policies if you opt for a comprehensive plan. Some of the prominent add-on policies are: Zero depreciation, Roadside assistance, Invoice protection, Passenger cover, Engine protection, etc.
Irrespective of which type of policy you think of choosing, purchasing it online is the most productive way of doing so. Few years ago, the only way to purchase an insurance policy was the offline method. Nowadays, almost everything can be purchased online. Just as you can open a fixed deposit and invest in mutual funds online, you can also insure your car online. Just remember to read the terms and conditions carefully before purchasing the policy.
(Views expressed in this article are a personal opinion of Animesh Das, Head of Product Strategy, ACKO General Insurance)