The 56th GST Council meeting, held in September 2025, approved major reforms in the GST regime, effective from 22 September 2025, including significant changes in GST rates on motor insurance. These reforms aim to simplify the tax structure, provide relief to vehicle owners by reducing the GST burden on insurance premiums, and consequently boost the motor insurance business.
This article breaks down the new GST rates applicable to different types of motor insurance policies across vehicle categories and analyzes the impact of this change from an insurance partner’s perspective.
What is the New GST Rate on Vehicle Insurance?
Previously, motor insurance premiums were uniformly taxed at 18% GST irrespective of the vehicle category or insurance cover type. Post-September 22, 2025, the GST Council rationalized the tax structure by introducing tax exemptions and differential GST rates based on vehicle type and policy nature. The new tax rates on motor insurance aim to promote affordability and timely renewals, particularly targeting the two-wheeler segment, where insurance penetration has traditionally been low.
Note: These new rates apply only to policies bought or renewed on or after September 22, 2025. Existing multi-year policies retain the old 18% GST for the remaining tenure.
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% + 15-22% cess | 40% |
|
Hybrid (up to 1200cc) |
28% + 1% cess | 18% |
| Hybrid (over 1200 cc) | 28% + 15-22% cess | 40% |
| Hybrid (up to 1500 cc) | 28% + 3% cess | 18% |
| Hybrid (more than 1500 cc) | 28% + 15-22% cess | 40% |
| All categories of electric motor vehicles | 5% |
5% |
Impact of New GST Rate on Motor Insurance
While changes in the GST rates for motor insurance are good news for policy buyers, for insurers, it is the same. Check out how the new rate on vehicle insurance after GST 2.0 reforms will impact the insured and the 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, 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.
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.
3 Things About New GST Rates on Motor Insurance You Must Keep in Mind
There are certain conditions you must watch out for before you assume that you are directly eligible for these GST rate cut benefits. Here they are -
Applicability Date: New GST rates apply only to policies purchased or renewed on or after September 22, 2025.
Existing Multi-Year Policies: Policies bought earlier are grandfathered with the old 18% GST rate for the unexpired term. There is no retrospective adjustment or refund.
Insurer Compliance: While the GST Council mandates rates, implementation timelines may vary across insurers. Buyers should verify GST charges in premium quotes to confirm benefits.
Conclusion
The GST 2.0 came as a breath of relief for citizens, especially the middle class, with many changes to the tax slab. From 18% GST on motor vehicle insurance to 0%, it is a huge benefit.
But it is also a reminder that these are subject to regulatory shifts. You must be aware of the latest updates and changes in the tax reforms. Understanding your vehicle insurance premium components enables you to make more informed decisions. You will also prioritise timely policy renewal to comply with the rules and diligently utilize your NCB.
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.
