How New GST Rates Impact Two Wheeler Insurance?

Posted on: Sep 5, 2025 | 3 mins | Written by: HDFC ERGO Team

How New GST Rates Impact Two Wheeler Insurance?

How New GST Rates Affecting Two Wheeler Insurance Premiums

In the recent GST Council meeting, new changes were made to the GST (Goods and Services Tax) rates across different sectors. One of the major impacts of the new GST rates is on the Indian automobile industry. Specifically for the two-wheeler market, bikes in the under 350cc category have become more affordable, while bikes above this engine capacity have seen a rise in price.

While the GST on two wheeler insurance remains unchanged, there have been significant indirect impacts of the new rates on bike insurance under GST 2.0. In this blog, we will explore the new GST rates for bikes and the GST impact on two-wheeler insurance in detail.

The Latest News: Revised GST Rates for Two Wheelers

The previous GST rates on bikes and scooters have undergone significant changes with GST 2.0. As per the new GST rates for bikes, some ICE bikes have become more affordable while others have risen in price.

Basically, bikes under an engine capacity of 350cc now have a GST rate of 18%, while bikes over this category now attract a GST of 40%. As for electric bikes, the GST rate remains a concessional 5%, and the GST on electric bike insurance is 18%. These new rates are in effect from 22nd September 2025.

The Old vs. New GST Rates for Two Wheelers

This chart highlights the previous GST rates vs. the new GST rates for bikes in India:

Bike Engine Cubic Capacity/Type	Previous GST Rate	New GST Rate as of GST 2.0	Change	Harmonised System of Nomenclature (HSN) Code
Engine under 350 cc	28% GST	18%	Decreased	8711
Engine exceeding 350 cc	28% GST + 3 CESS (31% Total Tax Rate)	40%	Increased	8711
Electric bikes and scooters	5%	5%	Unchanged	8711

Changes in GST Rate of Bike Insurance

In India, GST also applies when you buy or renew bike insurance policies. The old GST on bike insurance premiums before GST 2.0 was 18%. After GST 2.0, the GST on bike insurance premiums remains at 18%, meaning it has not been changed with the new structure. Additionally, all add-ons, such as zero depreciation, return to invoice and roadside assistance, attract 18% GST on top of their added premium.

But you should note that, although there is no direct impact of the latest GST reforms on bike insurance, there are some solid indirect effects.

How Do the New GST Rates Affect Bike Insurance Premiums?

The Insurance premiums are divided into two main components:

1. Base Premium:

The insurance company calculates this based on elements such as the Insured Declared Value (the maximum amount your insurance company will pay you if your bike is stolen or completely damaged beyond repair), engine capacity, and risk profile.

2. GST Component:

An additional tax is applied to the two wheeler insurance premium amount. Currently, GST is levied on general insurance products, including motor insurance, at a rate of 18%. This means that even if the insurer charges a base premium of ₹5,000, the final cost to the customer is ₹5,900 after adding GST.

Therefore, when the government lowers GST on motor vehicles, there is a ripple effect on insurance costs, since the taxable amount reduces. For example, bikes under 350 cc engine capacity now attract a GST of 18% instead of 28%. This lowers its ex-showroom price, which therefore reduces the vehicle’s IDV. So, when the own damage (OD) premium is calculated based on the new, lower IDV, the overall bike insurance price will also decrease.

However, third-party bike insurance premiums remain unchanged, as these rates are set by the regulator, IRDAI, and are standard across different engine capacities and not their ex-showroom prices.

Impact of New GST Rates on Buyer’s Habit

Now that the new GST rates for bikes under 350 cc have been reduced from 28% to 18%, you can make significant savings on your bike purchase under this category. The additional money you save can then be utilised in other aspects, such as buying safety gear, adding accessories and investing in a proper bike insurance policy.

Instead of a third-party only plan, many bike insurance buyers can easily consider purchasing a comprehensive policy with practical add-ons without worrying about the cost. Although this is an indirect GST impact on two-wheeler insurance, it is a crucial one.

Other Factors Contributing to Insurance Premiums

Here are some of the other factors that contribute to insurance premiums:

1. Location:

Cities with high traffic or accident rates attract higher insurance costs.

2. Usage of Bike:

Daily commuting bikes are riskier than occasional-use bikes, affecting premiums.

3. Optional Add-Ons:

Covers like zero depreciation, roadside assistance, or engine protection increase the premium.

4. No Claim Bonus (NCB) :

Claim-free riders receive discounts on their own damage premium.

5. Anti-Theft Devices:

Installing approved security systems can lower premium rates.

6. Policy Tenure:

Longer-term policies may offer discounted premiums over yearly renewals.

Ways to Reduce the Impact of GST on Your Two-Wheeler Insurance

Although GST on comprehensive bike insurance and third-party bike insurance remains standard at 18%, there are ways to manage your overall cost when buying the policy. For example, note that Insured Declared Value (IDV) directly affects your rate. A bigger IDV gives you more protection, but also means that your base rate (and the GST component) will be higher. Instead, picking the right IDV—neither too high nor too low—helps balance cost-effectiveness with safety.

Here are some helpful tips to lessen the effects of GST:

1. Choose Long-Term Policies:

If you choose an insurance that covers more than one year, your premiums will stay at the current rate. This will lower the total amount of GST you pay over time.

2. Use the No Claim Bonus (NCB) :

Keep your record claim-free to get NCB savings. This reduces both your base rate and the GST that goes with it.

3. Don't Bother with Extra Add-Ons:

Extra coverages like engine security or zero depreciation are helpful, but they increase rates. Pick out only the ones that work for you.

4. Install Anti-Theft Devices:

Security devices approved by the IRDAI can lower your rates, which will indirectly lower your tax bill.

5. Buy Online:

When you buy insurance online, you can often get savings and skip the intermediary fees that add up to higher prices.

Third-party bike insurance is still affordable for riders who want to save money. It meets the legal requirements and low rates, but it doesn't cover loss or damage to your property.

Policyholders can smartly deal with the effects of GST while still getting full or basic insurance for their bikes by following these steps.

Conclusion

The reduction in GST rates on motor vehicles does not just lower bike prices; it also reduces the cost of insuring them. Since insurance premiums include GST, a lower tax directly decreases what policyholders pay each year. This makes comprehensive coverage more affordable, encourages buyers to consider long-term policies, and improves overall compliance with mandatory insurance rules.

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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