Thinking of getting a two-wheeler insurance, but unsure about the GST amount? Knowing how GST applies to bike insurance can help you avoid surprises at checkout and plan your expenses more effectively.
In this article, we break down everything you need to know about GST on two-wheeler insurance. From applicable rates and their impact on premiums to how they differ for electric and used bikes.
What is GST?
GST or Goods and Services Tax is an indirect tax levied on the supply of goods and services in India. Introduced to replace multiple state and central taxes, GST aimed to simplify and unify the country’s taxation system. GST for two-wheeler insurance is charged over and above the base premium, making it an important cost component to consider when buying or renewing your policy.
GST on bike insurance in India
In India, a bike insurance GST percentage is 18%, additionally added to insurance premiums. For example, if your insurance premium is ₹1,000, then you will have to pay ₹1,180 (1000+18% GST) in total. Moreover, GST applies to both third-party and comprehensive plans.
Effect of GST on the bike insurance market
There is no denying that the bike insurance GST rate (18%) increased overall bike insurance premiums. This has made policies slightly expensive for customers. However, it has brought standardisation across the industry. Insurance companies had to adjust pricing structures, but the transparency in taxes helped streamline the billing and claim settlement processes.
GST rate on electric bikes
The GST rate of electric bikes is 5%. This is what makes them more affordable than traditional two-wheelers in terms of tax. This reduced rate also promoted eco-friendly transportation choices and supported India’s push towards a greener and more sustainable future.
GST on used/old bikes
If any individual sells a bike to another individual solely, there is no GST applicable because the transaction falls outside the scope of GST. However, if a registered dealer or business sells a used bike, GST is charged under the margin scheme.
In this case, the 18% GST is calculated only on the profit margin (the difference between the selling price and the purchase price or depreciated value).
GST impact on the two-wheeler industry
The introduction of 18% GST made the two-wheeler industry face a lot of ups and downs as it significantly increased the overall cost of ownership. While it streamlined the tax structure, it also reduced affordability for entry-level buyers.
To stay competitive and increase sales, the manufacturers had to launch more enhanced features and restructure their pricing structures. Moreover, lower GST on electric bikes (5%) boosted the demand for electronic vehicles.
Impact of GST on bike insurance premium
Earlier, the tax levied on bike insurance was 15% (14% service tax + 0.5% Krishi Kalyan Cess + 0.5% Swachh Bharat Cess). However, with the introduction of the GST, the taxation structure for insurance premiums has been streamlined under a single tax rate of 18%. This rate is the same for all types of two-wheeler insurance policies, whether third-party or comprehensive bike insurance plans.
For example, if your base premium is ₹2,000, the GST amount would be ₹360 (18% of ₹ 2000), making the total payable ₹2,360. This may seem small in isolation, but for individuals having insurance for multiple vehicles or opting for long-term comprehensive coverage, it becomes a huge amount.
Can you add your GST number to your bike insurance?
Yes, you can add up your GST if your two-wheeler is used for commercial purposes. However, when it comes to GST for two-wheeler insurance, claiming Input Tax Credit (ITC) is subject to specific conditions. According to the GST law section 17(5) of the CGST Act 2017, the ITC claim is only applicable if you use the vehicle for any of the following business purposes:
- Passenger transportation services
- For driving schools
- For delivery purposes of automobile retail shops, showrooms or manufacturing establishments
However, you may not be able to claim it if buying for personal use.
Conclusion
Understanding GST on bike insurance can help you make informed financial decisions. As now, an 18% GST rate is applied to premiums, the final premium cost can be significantly higher than expected. You can benefit by adding GSTIN if you are buying it for the allowed business purposes. It is always good to review the policy details, implications and tax to ensure you are not overpaying. A clear grasp of these charges can help you budget better and avoid surprises at renewal time.
FAQs
-
Does GST apply to electric two-wheelers?
Yes, 5% GST is applied to electric two-wheelers.
-
Has GST increased bike insurance premiums?
Yes. Earlier, the GST replaced the earlier service tax of 15% with 18%. It has increased the overall premium.
-
Can I claim GST input on my bike insurance?
Yes, but only if the bike is registered under a business and used for commercial purposes.
Disclaimer: The information provided in this blog is for educational and informational purposes only. It may contain outdated data and information regarding the topic featured in the article. It is advised to verify the currency and relevance of the data and information before taking any major steps. ICICI Lombard is not liable for any inaccuracies or consequences resulting from the use of this outdated information.