The GST (Goods and Services Tax) is the indirect tax introduced in India on 29th March 2017, thus replacing other indirect taxes like excise duty, services tax, VAT, etc. This tax is levied on the manufacture and distribution of the services and goods. It was one of the biggest tax reforms in India. This tax reform has also had a massive impact on the auto insurance industry, especially the two wheeler insurance market. Let us understand the impact of the introduction of the GST-based tax system on the two-wheeler market in India.
How does GST affect automobile insurance policies?
There are two types of bike insurance plans in India – comprehensive insurance and third-party insurance. Third-party insurance is a mandatory insurance policy that you are required to own by the law. The rates for third-party insurance are declared by the Insurance Regulatory and Development Authority of India (IRDAI) annually. These rates are based on the engine cubic capacity of the vehicle.
On the other hand, a comprehensive insurance policy promises much better coverage. It covers damages to the bike, theft of the bike, injuries to the owner, and it also includes the third-party cover. The rates for comprehensive cover are determined by the insurance companies based on a range of factors.
GST directly affects the premium rates of both the policy types – third-party as well as comprehensive. With the GST, the tax implications are now easy to understand. Since its inception, all taxes are categorized under a single umbrella, and there will be just one tax levied on the base price. The GST council has held the tax rate of 18 per cent for the automobile insurance sector. Apart from this, the two-wheeler insurance market saw a 3 per cent hike in their rates. These rates are then unloaded on policyholders as an increase in the premiums they pay for the policy. However, it does not make a huge difference to the premium prices.
Impact of GST on 2-wheeler insurance policies:
After implementing the GST law, the premium on the two-wheeler insurance policy has increased from 15 per cent to 18 per cent. This applies to almost every general insurance coverage product like health, travel, bike or car insurance. This will lead to insurance companies trying to offer the best two-wheeler insurance in India with more attractive prices than their competitors. However, one must understand why the GST law has had such an impact on bike insurance in India.
Interpreting the impact of GST on bike insurance market:
The revised tax rates on the two-wheelers will work in favour of the market. After it was introduced, the taxes on two-wheelers are now based on the engine’s capacity. Any two-wheeler with an engine capacity less than 350cc will now pay a GST of 28 per cent, while previously it was 30 per cent. The two-wheelers that have an engine capacity higher than 350cc will now pay around 31 per cent in GST, while previously it was 1 per cent higher.
A lot of individuals prefer to buy two-wheeler insurance online. These comprehensive plans are preferred if the policyholder wants complete protection against accidental damage to their vehicle or protection for an expensive two-wheeler. One of the main reasons individuals buy this policy is because it also offers a third-party liability cover. However, the premium for the comprehensive policy is more than the basic liability coverage.
With almost 3 per cent rise in the premium costs, the policyholders may shift to a basic two-wheeler insurance plan. But a comprehensive plan is recommended for you as they can provide protection for yourself, your bike and also a third-party cover.
How do I buy a plan after the inclusion of GST?
When you are narrowing down on a plan, you must consider certain aspects like roadside assistance, zero depreciation cover, etc. Buying an insurance policy will assure you of financial coverage and mental peace in the case of an accident. Hence, an increase because of the GST must not prevent you from purchasing a good insurance cover. On the bright side, because of such a rise in the premium rate, all insurance companies will try to release new strategies and plans that offer great benefits to their customers.
One way to ensure that you get the best price for your insurance coverage, use a bike insurance premium calculator while buying a policy. A premium calculator helps you find the exact premium you need to pay to get the type of bike insurance coverage you want. Using a bike insurance policy will help you find the best bike insurance that suits your budget.
Conclusion
Hence, with the introduction of the GST law, the insurance rates for two-wheelers have been revised. But this shouldn’t stop you from purchasing an extensive comprehensive policy for your vehicle. This is because owning an insurance policy is an effective way of taking care of the damage costs. While the insurance policy cost may seem a bit heavy on the pockets, you must consider the long-term advantages you will get from the plan. To make an informed decision, you can use the insurance calculators that insurance companies provide.