Reduced GST on Car Insurance 2025: How Premiums Will Change

The Goods and Services Tax (GST) Council's decision to cut car prices is set to significantly impact GST on car insurance across India from September 22, 2025. This landmark reform aims to make auto insurance more affordable and accessible, benefiting millions of policyholders. Understanding how the reduced car prices will impact the GST on car insurance premium is crucial for making informed decisions about your coverage.

In this article, we'll dive deep into the implications of the GST cut on cars and insurance, exploring the car insurance GST rate, its effect on premiums, and what it means for you as a vehicle owner. Let's navigate this transformative change together and ensure you're well-equipped to make the most of the car insurance GST percentage.

Overview

The GST Council's 56th meeting approved a sweeping rationalisation of the tax structure, reducing the previous four-slab system to just three slabs: 5%, 18% and 40%. This reform specifically targets segments that impact everyday life, including insurance and small cars. Although the car insurance GST rate will remain unchanged, the premium amount should come down due to cuts in car prices consequent to the GST reduction on cars in general. The move is also anticipated to stimulate demand in the automotive sector, as lower car prices and cheaper insurance make vehicle ownership more affordable for the middle class.

GST Rate on Car Insurance Premiums

At present, all motor insurance policies, including third-party liability, own-damage, and comprehensive covers, are taxed at an 18% GST rate. This means that for every ₹100 of the base premium, an additional ₹18 is levied as GST, pushing up the total outflow for vehicle owners.

There is no change in GST rate for insurance premium for motor cars. However, with the proposed GST cut on cars and related services, the insurance premium rate is expected to drop to a more affordable figure, depending on the type of vehicle and policy. This reduction will translate into substantial savings for policyholders, especially those with high-value cars or those opting for extensive add-on covers.

New GST Slab for Cars in 2025

The GST Council's decision to rationalise the tax structure for the automobile sector is a welcome move for the industry and consumers alike. The new GST slab for cars, effective from September 22, 2025, is as follows:

Hybrid Passenger Vehicles

Hybrid vehicles having engine capacity not exceeding 1200cc and of length not exceeding 4000 mm

• GST Rate: 18%

Hybrid vehicles other the above

• GST Rate: 40% (Reduced from 48% including Cess)

Passenger Vehicles (SUVs)

• Engine Capacity > 1500cc and length exceeding 4000 mm: 40% GST
• Engine Capacity ≤ 1500cc and length not exceeding 4000 mm: 18% GST

Vehicle below 1200 cc

• Petrol/CNG/LPG Engines: 18% GST
• Diesel Engines: 18% GST

Vehicle Over 1500 cc

• GST rate slashed from 28% plus cess to a flat 40%

Impact on Car Insurance Premiums

The reduction in the GST on automobiles significantly impacts the GST on Car Insurance Premiums. When GST on vehicles falls, the on-road price of cars decreases due to the lower tax burden. This reduction lowers the sum insured the insured declared value (IDV) of the vehicle for insurance purposes, which directly influences the premium calculation, making car insurance more affordable for buyers.

Additionally, the removal of cess and simplification into fewer GST slabs (18% for smaller vehicles and 40% for larger and luxury ones) further stabilises car prices. Hence, policyholders benefit from reduced insurance costs alongside vehicle price cuts. The cumulative impact on car insurance premiums is as follows:

• Premium = Sum Insured × Rate (Based on Risk factors)
• Sum Insured linked to car price (down due to GST cut on cars’s selling price)
• GST on insurance itself reduced or removed in some cases (0% on health/life)
• Reduced overall cost to policyholders

Benefits for Vehicle Owners

The reduced car prices will lower GST on car insurance premiums, bringing a host of benefits for vehicle owners:

1. Increased Affordability:The lower car prices and GST rate on car insurance will make policies more affordable, encouraging more people to opt for adequate coverage and protecting their vehicles against unforeseen risks.
2. Enhanced Coverage:With the same budget, policyholders can now afford higher IDVs or additional add-on riders, improving their overall protection.
3. Simplified Tax Structure:The revised car prices and car insurance GST percentage streamline the tax regime, making it easier for consumers to understand the composition of their premiums.

Should You Renew or Buy Car Insurance Now?

With the GST cut on cars and insurance set to take effect from September 22, 2025, many vehicle owners are wondering whether they should renew or purchase their policies now or wait for the revised rates to kick in.

While it may be tempting to delay your insurance decision in anticipation of the reduced cost of GST on car insurance premium, it's crucial to remember that driving without valid insurance is a legal offence and can lead to severe penalties and financial liabilities in case of an accident. You may also end up losing your accrued No Claim Bonus.

If your current policy is nearing expiry or you are planning to buy a new car in the near future, it's advisable to go ahead with your insurance purchase or renewal as per your original timeline.

Secure Your Car Journey Now

The reduction in car prices and, consequently, lower GST on car insurance premiums in 2025 is a significant step towards making vehicle ownership more affordable and accessible for millions of Indians. With the slashing of GST on car prices resulting in a lower car insurance premium, the government aims to encourage higher insurance penetration, promote road safety, and provide financial relief to vehicle owners.

As a policyholder, understanding the impact of the revised GST on car insurance premium for your specific vehicle and policy type is crucial to making informed decisions. By opting for the trusted Royal Sundaram Car Insurance, you can navigate the changing insurance landscape with ease and enjoy comprehensive coverage at competitive prices.