New GST Rates on Motor Insurance in India after 22 September 2025
GST on motor insurance varies across different vehicle categories, affecting the overall insurance premium. The final premium also depends on factors such as the policy type, IDV, No Claim Bonus (NCB), and optional add-on covers.
The GST Council's 56th Meeting, held in September 2025, made important changes to the GST regime that took effect on 22nd September 2025, including changes to GST on motor insurance. The changes will make GST simpler for taxpayers, reduce GST liability on insurance premiums, and promote the purchase of motor insurance.
This article explains the latest GST rates applicable to different vehicle categories, how GST impacts your insurance premium, and what these changes mean for policyholders and insurance partners.
What is the New GST Rate on Vehicle Insurance?
Prior to the introduction of these changes, motor insurance premiums were taxable at a GST rate of 18%, regardless of the type of motor insurance policy taken.
As per the GST Council's decision, different taxes will be charged based on vehicle category and applicable regulations.
Please note: The above-stated revised rates will come into effect only for insurance policies taken/renewed from 22 September 2025. Multiyear policies are exempt till their expiry date.
New GST Rates on Motor Insurance (Effective 22 September 2025)
| Vehicle Category | Previous GST Rate | New GST Rate |
| Petrol/LPG/CNG (up to 1200 cc) | 28% + 1% cess | 18% |
| Diesel (up to 1500 cc) | 28% + 3% cess | 18% |
| Other Passenger Vehicles | 28% + applicable cess | 40% |
| Hybrid (up to 1200 cc) | 28% + 1% cess | 18% |
| Hybrid (up to 1500 cc) | 28% + 3% cess | 18% |
| Hybrid (above prescribed limits) | 28% + applicable cess | 40% |
| Electric Vehicles | 5% | 5% |
How GST Impacts the Final Cost of Your Car Insurance Premium
While buying motor insurance, the GST on car insurance policy is calculated on the insurance premium after taking into account various parameters of pricing. Hence, any change in your premium will lead to a corresponding variation in the GST as well. The following are some of the factors that determine the final GST on car insurance premium rate:
- Kind of policy (Comprehensive/Third Party)
- Type of vehicle
- Insured Declared Value (IDV)
- Additional covers (optional)
- NCB
- GST
Comprehensive Insurance
Comprehensive insurance includes both third-party liability and own-damage coverage. Since the premium is generally higher, the GST amount is also comparatively higher.
Third-Party Insurance
Third-party insurance covers only legal liability towards third parties. As the premium is lower than comprehensive insurance, the GST payable is also relatively lower.
Add-on Covers
Optional add-ons such as Zero Depreciation Cover, Engine Protection Cover, Roadside Assistance, or Return to Invoice Cover increase the premium payable. Since GST on car insurance policy is calculated on the premium amount, purchasing additional covers also increases the GST payable.
For example, you take a comprehensive policy for your vehicle with an own-damage premium of ₹8,000, a third-party premium of ₹2,500, and an additional premium of ₹1,500 for a Zero Depreciation rider. Your premium without GST would be ₹12,000. The GST rate is 18%. This implies that GST would be ₹2,160, and your premium, including GST, would be ₹14,160.
Impact of New GST Rate on Motor Insurance
While changes in GST rates for motor insurance are good news for policy buyers, they are the same for insurers. Check out how the new vehicle insurance rates after GST 2.0 reforms will impact insureds and insurers.
For the Insured or the Policyholders
Cost Savings: With exemptions and reduced rates, vehicle owners can save across all insurance policies, making ownership more affordable. For example, an 18% tax on a ₹5,000 premium meant ₹900 in tax, which is now possibly saved, fully or partially, depending on the policy.
Better Compliance: Lower premiums motivate more owners, especially of two-wheelers and EVs, to insure and renew without delay.
Advanced Coverage: Reduced GST rates encourage upgrades from mandatory third-party insurance to comprehensive plans. Support for Sustainable Vehicles: Zero GST on EV insurance complements India’s vision for sustainable transportation.
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For Insurers
- Revenue Impact: Insurers will temporarily lose GST collections but expect gains via increased policy volumes.
- Competitive Market: Pricing models require revision to promote product innovation and competitive advantages.
- Growth in Renewals: The reduced GST is expected to decrease policy lapses and significantly boost renewal rates.
- New Customer Acquisition: Easier affordability attracts first-time buyers and creates opportunities for upselling.
Does GST Apply Differently to New Policies and Car Insurance Renewals?
Whether you’re buying a new policy or renewing an existing one, GST applies to the insurance premium. However, the premium on which GST is calculated may differ depending on factors such as your vehicle profile, claim history, No Claim Bonus (NCB), and any changes in coverage.
GST on New Car Insurance Policies
When purchasing a new motor insurance policy, GST is calculated on the premium payable after considering factors such as:
- Vehicle type
- Insured Declared Value (IDV)
- Policy type (Third-Party or Comprehensive)
- Optional add-on covers
The applicable GST is then added to arrive at the final premium payable.
GST on Car Insurance Renewal
For renewal policies, the GST on car insurance renewal premium may change due to:
- Claim history
- No Claim Bonus eligibility
- Revised IDV
- Addition or removal of riders
- Insurer pricing revisions
To maintain uninterrupted policy benefits and continuity of coverage, it is advisable to renew your policy before it expires. Have an existing one? Learn more about rollover in motor insurance here.
Can No Claim Bonus Help Reduce the Impact of GST on Car Insurance?
As GST on car insurance is calculated on the premium amount, a No Claim Bonus (NCB) can reduce the overall premium on which GST is calculated.
NCB in car insurance is a reward offered to policyholders who do not make an own-damage claim during the policy period. Since the discount reduces the own-damage premium, the GST payable also decreases.
Example
Suppose your own-damage premium is ₹10,000, and you have earned a 20% NCB.
| Particulars | Amount |
| Original Premium | ₹10,000 |
| NCB Discount | ₹2,000 |
| Premium After NCB | ₹8,000 |
| GST | Calculated on ₹8,000 |
This means maintaining a claim-free record not only lowers your premium but also reduces the GST amount payable.
Understanding the Relationship Between GST, IDV, and Insurance Premiums
Several factors work together to determine your final insurance premium and the GST payable.
| Factor | Impact on Premium | Impact on GST Amount |
| Higher IDV | Increases premium | Increases GST payable |
| No Claim Bonus | Reduces premium | Reduces GST payable |
| Add-on Covers | Increase premium | Increase GST payable |
| Policy Renewal | Depends on insurer, vehicle profile and claim history | GST applies to the revised premium |
A higher Insured Declared Value (IDV) generally increases the insurance premium because the insurer’s maximum liability also increases. Use an IDV calculator to find the right IDV.
Similarly, optional add-on covers increase both the premium and GST payable. On the other hand, earning an NCB reduces the premium, which also lowers the GST amount.
Things to Keep in Mind About the New GST Rates
However, before thinking that you are entitled to all the above-mentioned benefits under the revised GST, take note of the following:
Date of Applicability
The GST rates have been revised only for eligible motor insurance policies taken or renewed on or after 22 September 2025.
Existing Multi-Year Insurance Plans
If any multi-year plans were purchased before the revision of GST rates, they will not change under the GST scheme unless stated by relevant regulations.
Check Premium Details Before Buying
When buying or renewing an insurance plan, it is imperative to review the premium details provided with the premium quotation.
After the GST changes were made in 2025, there have been many significant impacts on the taxation of motor insurance in India. Knowing GST on car insurance premium will enable you to make informed decisions during purchase or renewal of the insurance.
Apart from GST, other parameters like IDV, NCB, add-ons, and types of insurance policies also affect the final premium that needs to be paid. Going through these components before buying or renewing your motor insurance can benefit you a lot.
Disclaimer* :- The information provided here is for general awareness only. It does not constitute professional advice. While care has been taken to ensure accuracy, readers are advised to consult a qualified professional before making any decisions.
FAQs
What is the new GST rate on motor insurance after 22 September 2025?
As per the GST Council’s 56th meeting, the standard GST rate on motor insurance premiums remains 18% for most private and two-wheeler policies. However, some commercial or goods-carriage third-party policies may now attract a reduced rate of 5%. Life and health insurance premiums (for individuals) are now exempt (0%).
Does the 0% GST exemption apply to all types of insurance policies?
No. The 0% GST rate applies primarily to life and health insurance policies purchased by individuals. Motor insurance continues to fall under the general category of taxable services and, in most cases, attracts 18% GST.
If I renew my car insurance after 22 September 2025, will I automatically get a lower GST rate?
Not necessarily. Only insurers who have revised their pricing structures to reflect the updated GST schedule will apply the new rate. Always check the invoice; the GST component must be listed separately.
I have a multi-year motor insurance policy bought before 22 September 2025. Will I get a GST refund or reduction for the remaining years?
No. The GST rate applicable is based on the invoice date and policy start date. Policies purchased before the new GST regime’s effective date will continue under the old (18%) rate for their full term.
How will the new GST structure impact the motor-insurance business in India?
The perception of lower or simplified taxes has already started boosting sales. More vehicle owners are expected to renew on time or buy comprehensive cover. This trend benefits insurers and partners by expanding their customer base and improving compliance — even if margins per policy slightly shrink due to ITC changes.
Does GST apply to add-on covers in car insurance?
Yes. Add-on covers such as Zero Depreciation, Engine Protection, and Roadside Assistance increase the insurance premium, and GST is applicable on the revised premium amount.
Can No Claim Bonus reduce the GST payable on insurance premiums?
Since NCB lowers the own-damage premium, GST is calculated on the reduced premium, thereby lowering the overall cost.
Does GST affect third-party and comprehensive car insurance differently?
GST is applicable to both policy types. However, since comprehensive insurance generally has a higher premium than third-party insurance, the GST amount payable is usually higher.
Is GST included in the premium amount shown by insurers?
Almost all insurance companies provide a breakdown of the premium, including the base premium, GST, and the total premium payable.
How does IDV impact the total car insurance premium?
The premium usually increases when the IDV is higher, as IDV is the maximum amount that can be paid in the event of complete loss or theft of the car. This is because GST will also increase as the premium increases.
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