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IRDAI 2025 Updates: Car Insurance & GST Explained

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If you have been looking for "IRDAI 2025 updates" regarding car insurance, you're not the only one. The news concerning GST changes on cars and insurance has been muddled up online, which has left many Indian car owners and purchasers perplexed.

Let's make this clear from the very beginning.

In 2025, there are no significant changes to the IRDAI car insurance rules that will affect consumers. IRDAI has not altered how your car insurance operates, what coverage you receive, or how premiums are set. However, some people's insurance costs have been indirectly impacted by the GST changes on specific cars in 2025, particularly those who are purchasing new cars.

What exactly is this article about, then? This article illustrates how, rather than new IRDAI car insurance rules, changes in GST on car prices may have a minor impact on the cost of car insurance. By the time it's over, you'll know exactly what has changed, what hasn't, and how it impacts you as a car buyer or owner.

What has (and has not) changed in car insurance in 2025

Since misinformation is where most doubt starts, let's start there.

1. Third party car insurance has not changed at all.

In India, third party car insurance is still required. You need to have at least third party insurance if you own a car. In 2025, this rule remains unchanged.

Insurance companies do not set third party auto insurance premiums; IRDAI does. For diesel and petrol cars, it is mostly determined by engine capacity; for electric vehicles, it is based on battery size. These rates are regulated, so they are not affected by changes in GST, discounts, or car prices.

Therefore, your third party premium remains the same even if your car becomes less expensive as a result of a GST reduction.

2. The GST on car insurance premiums is still 18 per cent.

Another popular rumour is that the GST on insurance has been altered. It hasn't.

The GST on auto insurance premiums is still 18%. This applies to:

• Own damage cover

• third party car insurance

• Add-ons for comprehensive auto insurance

The tax rate on insurance doesn't vary whether you purchase a new policy or renew an existing one.

3. In 2025, there are no new IRDAI prices or coverage rules.

There are no new IRDAI regulations that alter customer pricing or coverage for car insurance. Benefits were not eliminated. There were no mandatory add-ons. Regulation did not remove any discounts. IRDAI car insurance rules are not the cause of why your premium seems different this year.

This clarity is important because everything becomes simpler to understand once regulation and taxation are separated.

GST changes on small cars in 2025

The 2025 GST cut does not directly affect insurance; rather, it pertains to specific types of small cars. This is a vehicle tax modification, not a policy change.

1. Which vehicles are eligible for reduced GST?

Lower GST applies to the following under the updated structure:

• Cars with diesel engines up to 1500 cc

• Cars powered by petrol up to 1200 cc

• Vehicle length under 4 meters

Together, these criteria determine what constitutes a compact car under the tax code. A car is now subject to a lower GST rate than it was previously if it falls within these bounds. Higher tax brackets apply to larger cars, luxury vehicles, and larger hybrids.

2. What does the GST cut really achieve?

Reduced GST lowers the car's ex-showroom pricing. The on-road cost decreases together with the base price + tax. It doesn't immediately address coverage definitions, insurance regulations, or premium prices.

This distinction is crucial because a lot of people believe that cheaper cars inevitably translate into cheaper insurance. Insurance does not operate that way.

How does lower car GST indirectly reduce insurance cost

This is the most crucial section and the one that requires the most explanation.

There are two main components to your car insurance premium.

The third party premium comes first. This is regulated and fixed. Discounts, GST, and automobile prices do not affect it. Thus, this part is left unaltered.

The portion that covers damage to your own vehicle is called the own damage premium, and it comes in second. Here, the GST on cars has a minor impact.

1. Why has the own damage premium changed?

A few important elements determine the own damage premium:

• IDV, or your car's insured declared value

• Model and variation

• The vehicle's age

• Location and risk assessment

IDV is particularly crucial. It shows how much your car is currently worth on the market. The ex-showroom price of a car decreases when the GST is lowered. At the time of purchase, a reduced price translates into a lower IDV. A little lower own damage premium results from a lower IDV.

This is not a sharp decline. It is not a discount announced by insurers. It is the result of a mathematical outcome of a lower car value

Example:

Suppose that the only difference between two identical cars is that one was purchased before the GST cut, while the other was purchased after.

The IDV is somewhat lower for the more recent buyer. The own damage premium decreases a little because it is computed as a proportion of IDV. The premium for third parties remains unchanged. Comprehensive car insurance GST remains at 18%. The only part that changes is the own damage portion.

Therefore, the total cost of car insurance may go down a little, but only for first-time purchasers and only for own damage side.

Who benefits and what to keep in mind?

Here's where having a practical understanding aids in setting appropriate expectations.

Because IDV is set at the time of purchase, new car buyers get more than current owners. The GST increases on new cars won't cause your renewal premium to abruptly decrease if you currently own a car. Because the GST cut mostly affects small sectors, consumers of small cars are more affected than buyers of premium or larger cars.

Everyone pays the same amount for third party car insurance, regardless of the size of the vehicle or when it was purchased. Savings differ between models and insurers. When it comes to the final premium, the location, claim history, and add-ons are still more important than GST.

If you're also interested in compliance upgrades, you might want to read our comprehensive guide on IRDAI’s New KYC Norm for Car Insurance Policy to learn about the documentation changes.

Conclusion

A lot of people confuse insurance regulation with tax policy. That's the beginning of panic.

Car insurance operations are governed by IRDAI. A car's price is determined by GST. These two systems are separate from each other. Once you can see this chain clearly, the confusion vanishes. Car insurance still functions in the same manner, regardless of whether it is comprehensive car insurance or third party. The price of some cars has altered, and this has a gradual rather than a dramatic impact on insurance rates. Knowing the distinction between insurance regulations and tax adjustments enables you to make more informed judgments without succumbing to headlines that exaggerate the situation.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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