Impact of GST Reforms on Car Insurance Premiums

The Indian automobile market has undergone a huge transformation after the introduction of GST 2.0 reforms in 2025. The GST Council, recently in its 56th meeting, revised the GST rates for motor insurance. For existing car insurance policies purchased before September 22, the GST on car insurance remains unchanged for those policyholders. But new car owners will likely now enjoy lower car insurance premiums on their newly purchased car. As with reduced GST rates, the IDV of a car will also likely decrease. Let's understand how.

​Here are the revised GST rates on Car Insurance Premium

The Indian government made significant changes in the GST structure, minimizing the earlier 28% GST applied to four-wheelers. After this, car prices across various segments are lowered. Previously, a compensation cess of 1% to 22% was levied on four-wheelers. Under the new GST 2.0 framework, this cess has vanished for all vehicle categories except luxury cars and those equipped with high-capacity engines.

The updated GST rates for cars will take effect from September 22, 2025.

Key Impact of GST on Car Insurance Premiums

As mentioned above, the revised GST rates will have no impact on existing car insurance premiums. They have to pay GST at 18% during motor renewals. However, the good news is that if you are planning to purchase a new car, you will benefit from lower premiums due to recent reductions in GST. The car insurance premium is calculated based on the insured's declared value (the present market value of the car).​

Let's examine how the revised GST rates will affect different types of car insurance.

Third Party Car Insurance

​We would like to inform you that third-party insurance will remain unchanged, as it is regulated by the IRDAI guidelines, which are determined based on the car’s engine and battery capacity. It will not take into account the make of the model.

Comprehensive Car Insurance​

The own damage component of the four-wheeler insurance might decrease due to reduced IDV of the car. As a result, the overall car insurance premium of a comprehensive insurance plan may also get lower.

​Apart from IDV, other factors also affect car insurance premiums.

Vehicle Age and Model

The vehicles that are older in nature may lower car insurance premiums, but the luxury of high-end cars incur high premium costs.

Engine/ Battery Capacity​

The car insurance premium for vehicles with huge engines or EVs with higher battery capacity is considerably higher.

Car Insurance with Add-on Covers

If a policyholder has opted-in add-ons, such as return to invoice, roadside assistance, and zero depreciation, in their car insurance, then the car insurance premium will likely be higher.

​Car Registration Location

​If the policyholder is residing  in a traffic-dense or accident-prone area, the car insurance premiums are likely to be higher due to  risk of accidents or unfortunate events.

No-Claim Bonus

A no-claim bonus in car insurance is a type of discount that the insurer offers to Policyholders for making no claims in the previous year. Therefore, NCB can also be a factor that affects the car insurance premium amount.

The luxury car segment still has to bear a High Cess

For luxury, and that continues to attract cess under GST 2.0, insurance premiums are unlikely to decrease significantly. Since their IDV and repair costs remain high, these cars will still have relatively higher insurance costs.

Easier Ownership, Higher Insurance Penetration

With car prices becoming less expensive after the new GST reforms, the demand of cars also increased to a great extent, indirectly increasing the demand for car insurance premium also.

Best for insurers and policyholders

The 2025 GST reforms mark a significant and positive shift for both car buyers and insurance policyholders. Affordable vehicle prices, straightforward taxation, and potential adjustments to GST on financial services collectively pave the way for more accessible and cost-effective car insurance.