What does the GST 2.0 say?
Announced by Finance Minister Nirmala Sitharaman at the 56th GST Council meeting, GST 2.0 or Next-Gen GST reform was made to simplify the tax structure, boost consumption, ease business complexities and stimulate economic growth.
Scheduled to come into effect from September 22, 2025, the GST reform states a reduction in the tax slabs for automobiles. Bringing a sigh of relief to the car owner and potential car buyers, this reform hasn’t just eased the tax calculations but also eliminated multiple tax layers on the car, bringing down the car prices and making it affordable for people.
How did GST 2.0 impact the car insurance premiums?
The revision of the GST rates ahead of the festive season for the Indian automobile market brought joy among car enthusiasts, but it also created chaos about its impact on the car insurance premiums. Car buyers and owners are eager to know the difference in GST on car insurance after 22 September.
Unlike life and individual health insurance, where premiums are slashed down to zero, the car insurance premiums remain unchanged. This means that the GST rates for the existing car insurance remain unaffected.
Here are the new GST rates for car insurance:
- Car insurance premiums: 18% GST.
- Car insurance renewal: 18% GST (as earlier).
New GST on car insurance: A bigger picture
Though from the surface, it may look like everything remained unchanged, but as you deep dive, you’ll see a much bigger picture. The existing car insurance policyholders still need to pay 18% GST at the time of policy renewal, but there is something for the new owners.
New owners might see a change in the car insurance premiums due to the GST reduction on a few types of cars. Insured Declared Value or IDV is a major factor that highly impacts the premium amount of the car insurance. IDV, in simple terms, refers to the market value of the car. The GST on cars and IDV shares a positive relationship, which means that with less GST on cars, the IDV decreases, and likewise.
The other factors that impact the premium of the car insurance include:
- Location
- Age of the vehicle
- Gender
- Add-ons
No claim bonus (at the time of renewal)
Impact of GST on different types of car insurance
The car insurance is related to the ex-showroom price of the car, which is inclusive of GST. This somewhere sparks the hope that a reduction in car prices will surely bring great news to the new car buyers, resulting in lower insurance premiums.
Here are the precise details about the new GST on car insurance premiums for different car insurance:
Comprehensive insurance: The overall premium of the comprehensive insurance is likely to go down only if the own-damage component goes down.
Third-party car insurance: The premium amount for this type of insurance is determined by IRDAI and is likely to remain unchanged.
How new GST on car insurance premiums affect?
Though there are no changes in the car insurance premiums, but a reduction in vehicle insurance GST matters a lot. Below is a glimpse of how the reduced car insurance GST (if it happens) will impact buyers and the automobile market as well:
- Increased affordability of the cars, as lower GST will result in low EMIs and easy down payments.
- More transparency with the simplified tax calculations, no hidden charges and the elimination of the multiple tax layers.
- A boost in the automotive sales because of reduced prices and the festive season down the road.
Impact of GST 2.0 on car prices
The GST overhaul states the revision of the taxation on cars in the following slabs: 18% on small cars, 40% on luxury cars, and 5% on EVs. With this, the new car insurance GST rate 2025 remains completely unaffected as of now.
The GST on cars is reduced for the small and mid-size cars, and on the contrary, the same has been increased for the luxury cars. The new GST reform removed cess from all vehicles except the luxury ones.
| Car category | Old Tax Rate (GST + Cess) | New GST on Car Purchase |
|---|---|---|
| Small Petrol (≤1200 cc, ≤4 m) | 29% (28% + 1%) | 18% |
| Small Diesel (≤1500 cc, ≤4 m) | 31% (28% + 3%) | 18% |
| Mid-size (1201–1500 cc) | 45% (28% + 17%) | 40% |
| Large Cars (≥1500 cc) | 48% (28% + 20%) | 40% |
| Big SUVs (≥4 m, ≥1500 cc) | 50% (28% + 22%) | 40% |
| Electric Vehicles (EVs) | 5% (no cess) | 5% (no cess) |
Conclusion
The revision of the GST on cars has made it easy for potential buyers to own a car this festive season. With great price slashes, cars from all the brands will now be available for purchase at new and much affordable prices from September 22 onwards. Though one thing to be noted is that, definitely, there is a reduction in GST, but the GST rate on car insurance remains unchanged, for now. So, if you are planning to purchase a new car, this is the perfect time. Just mark your calendars and bring home your dream car.