Summary
When you purchase a car, your primary responsibility should be to secure it. One of the key ways to do it is to get car insurance. However, these days, GST is being charged on car insurance as the protection is considered a service. It is crucial to be aware of how much GST you are paying on your car insurance premium.
Ever since GST was implemented in 2017, insurance premiums for cars and other vehicles have been subject to a uniform tax rate. The GST rate on car insurance as of 2026 is 18%, including own damage policies, comprehensive coverage, and third-party liability.
The 18% GST applies to the entire base premium, which is the net premium before tax. Unlike health and life insurance premiums, GST is still applicable to third-party and own damage car insurance premiums. However, recent reforms tend to rationalise the rates for goods such as cars.
This article explores how GST affects your car insurance in 2026.
The car insurance GST rate is 18%. Therefore, if your car's annual comprehensive insurance excluding GST is around ₹20,000, the GST will be ₹3,600. As a result, you'll have to pay a total of ₹23,600.
This GST rate applies to renewals, add-ons, and new purchases. The third party car insurance, which is mandatory as per the Motor Vehicles Act, will also have an 18% GST.
However, the recent changes to the GST on cars also indirectly affect insurance costs. The lower GST on small and mid-size cars reduces the ex-showroom price. This reduces the Insured Declared Value of the car, thereby affecting own-damage premiums. Therefore, new buyers can have significantly lower base premiums, although the 18% GST rate remains unchanged.
GST is usually charged on 'services', and the Indian tax system treats insurance as a service. Therefore, when you purchase comprehensive insurance from a company, they're offering you financial services.
As a result, you'll have to pay for the GST. Since the company is offering risk coverage, it is seen as a service. Therefore, GST will apply to the car insurance premiums.
GST has a direct as well as indirect impact on the own damage and third party car insurance. The direct impact is the increased premium. The indirect impact, however, comes through changes in car prices.
At the 56th GST Council meeting in September 2025, GST on small cars and EVs was reduced. This resulted in lowered Insured Declared Value for some cars. However, it is necessary to note that this benefit will apply only to new-car buyers and not to old or existing car owners.
Whether you get third-party car insurance or own damage car insurance, there's no way you can avoid paying GST. The 18% GST you pay is a mandatory tax on the services provided by insurers.
Most of the insurance companies these days quote you the price inclusive of GST. However, you'll have to be mindful while buying the insurance, but you can't miss out on paying the GST
There are exceptions applied to it. These exceptions apply only to business or commercial contexts. In some cases, the GST on third-party insurance for goods carriages was rationalised, but it will not apply to private passenger cars.
If you're using your own car, you must pay GST. It is usually included in the premium. Thus, make sure to pay the premiums on time and avoid missing the deadline.
What is the GST on Commercial Vehicle Insurance?
When you are looking into third-party car insurance for your commercial vehicle, you'll need to be extra careful. You will have to check with the insurance company what the percentage is.
Before buying the policy for your commercial vehicle, you must read the terms and conditions thoroughly. This is mostly applicable to third-party insurance for goods carriages.
The No Claim Bonus is one of the most attractive components of your car insurance. With the No Claim Bonus, you can lower your insurance premiums through discounts because of the benefits you've accumulated over the years.
For every claim-free year, you get No Claim Bonus benefits that you can use during policy renewal. However, while considering the NCB benefits on your car insurance, you'll have to be mindful of GST as well.
According to Circular No. 186/18/2022-GST (48th Council)
1. The No Claim Bonus on your car insurance will be treated as a discount, and there will be no further consideration for it.
2. NCB will be considered an upfront discount on the premium paid by the insured for the services offered by insurance companies.
3. The No Claim Bonus is deductible for calculating the value of provided insurance services within Section 15.
If you collect a good amount of NCB, the taxable value of the car insurance premium will be lower, too. Moreover, no GST will be charged on the bonus amount deducted at the time of renewal.
The GST will apply only to the comprehensive insurance policy premium, excluding NCB benefits. To learn more about how to reduce your premium, read our blog, Simple Guide to Lower Car Insurance Premium in 2026.
There's no way for individual car owners to claim car insurance GST rate refunds if they're using it for personal reasons. According to Section 17(5) of the Central Goods and Services Tax Act, input tax credit on motor vehicle services is not available for passenger vehicles with a seating capacity of up to 13 people. Hence, it applies to the regular private cars.
Nonetheless, businesses, GST-registered companies, or entities can claim input tax credits only for specific purposes. This will be applicable only if the car is used for commercial purposes:
• Transporting passengers
• Goods delivery
• Resale of vehicles
• Training the drivers
Furthermore, commercial or passenger vehicles with a seating capacity of 13 or more will also be eligible. In these cases, the GST paid on premiums will be adjusted against the output tax liability when GST returns are filed.
In case of a claim-free year with high No Claim Bonus benefits, how will GST apply?
If you have a No Claim Bonus, you can use it during the renewal. The GST will be charged on the reduced premium after the NCB amount is deducted. This will lower the taxable value, further reducing the final premium to be paid. It is crucial to maintain a claim-free record not only to secure discounts but also to reduce GST at the time of renewal.
If you're buying insurance for your commercial vehicle, you can claim the Input Tax Credit (ITC) on the GST. This helps reduce companies' effective insurance costs. As a result, you won't have to pay higher charges than those of regular vehicle owners.
Tax is one of the most important parts of car insurance in India. GST continues to be included in car insurance premiums in 2026. As the insured, you'll need to check how much GST you'll have to pay on the insurance and the type of coverage the policy provides.
General insurance products, such as car and property insurance, will continue to have an 18% GST on premiums. In 2026, there will be no exemption for the insurance products.
The GST on commercial vehicle insurance will be 18%. Businesses can also claim ITC if the particular vehicle is being used for business.
Yes, add-on covers on car insurance can increase GST. These add-on covers are mostly taxed with the policy. However, in most cases, the GST is around 18%.
Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.
Was this article helpful?
Popular Articles
Scan To Download
Latest Articles
