When purchasing a bike insurance policy, the premium is one of the most important factors. We may have certain requirements, but our budget is what ultimately determines our choices. People with tight budgets often opt for third-party insurance policies because they are more affordable.
All policyholders must rethink their choices after implementing the Goods and Services Tax (GST), which also affects the bike insurance sector. The insurance sector is facing an increase in taxes, similar to any other industry. Insurance policies are affected by the rise in service taxes, and you have to pay more for them.
The increase in the price of premiums is not huge but considerable enough. For instance- if you plan to purchase a two-wheeler insurance policy with a premium of INR 1000, you will have a service charge increase of INR 300, as the GST rate for insurance policies is 18%.
GST: What Does It Mean?
The GST replaced earlier tax systems between the Centre and states. It will combine all taxes imposed on goods and services by the central government and states.
GST and Insurance: How Does It Affect the Two-wheeler Insurance Industry?
Several factors have affected the two-wheeler insurance industry as a result of the Goods and Services Tax (GST):
1. An Increase in Policy Premiums
July 1, 2020, marked the implementation of the GST. According to the law, insurance products and services will now be subject to a 3% increase. As a result, the insurance sector is now subject to a GST of 18% instead of the previous 15%.
The new GST rate applies to all general insurance products, such as bike insurance and other motor insurance policies. A new two-wheeler insurance policy or a renewed one is included in this category. Also, 3rd party bike insurance, standalone damage insurance, and comprehensive bike insurance policies will see their premiums rise due to the hike.
2. Bike Insurance Companies are Becoming More Competitive
It can be a drawback for policyholders to see their premiums rise. Some people can become hesitant to buy a policy or stick to the standalone damage policy or a third-party bike insurance policy.
The bike insurance companies will attempt to maintain and create policy demands in such a scenario. To attract customers, insurance companies offer new benefits and features. The market will naturally become more competitive as a result.
How Does GST Affect the Two-wheeler Insurance Industry?
There is no GST on selling two-wheelers, but a GST on two-wheeler insurance has slightly raised premiums. Two-wheeler sales had previously been taxed 30% before the GST was implemented. In contrast, the tax rates for two-wheelers below 350cc and above 350cc are different from the GST.
1. Electric Bikes and GST
GST rates on electric two-wheelers or electric vehicles were previously 12%; however, effective August 1, 2019, the GST council reduced them to 5%.
2. Used/Old Bike GST
Second-hand bikes and two-wheelers used to be subject to GST at 28%, similar to new vehicles. Now it is 12%. Cess levied on previous GST rates has also been eliminated.
Bike Insurance: Things to Keep in Mind
The look, model, brand, price, and other factors are considered when buying a new bike. It is either that you insure your vehicle or that you ignore it completely.
India's government has made third-party bike insurance liability compulsory. While it's important to be aware of the basics of coverage, it shouldn't mean you pick options randomly.
Initial Hiccups Faced by Insurance Companies
1. Insurance Companies have to Register in all States
Taxes collected by the state where the goods or services are consumed destination-based taxes and insurance companies' business processes must be updated accordingly. Upon registration under the GST regime, service providers must obtain registration for all the states where their customers reside, i.e., all the states in which they operate.
2. Separate Services and Invoice Customers
For State Goods and Services Tax (SGST) to be rendered for respective states, it must be implemented through Integrated Goods and Services Tax (IGST). Thus, bike insurance companies must separate their services and invoice customers according to their consumption location.
3. GST will be Applied to Branch Transactions
Due to the vast number of financial transactions in branches, GST on branch transactions must be carefully accounted for.
4. GST will Change Record Management System for Insurance Companies
It is necessary to maintain policyholder records efficiently. A supplier's records indicate the location of the service recipient as a place of service supply under GST. The importance of maintaining accurate records cannot be overstated.
5. Change Vendor Organization and Intermediaries for Tax Credits
An insurance company must organize their respective vendors and intermediaries to reverse input tax credits and provide their identifications. Despite the nominal tax increase post-GST, the increased outflow for many policyholders could be substantial.
Individuals whose annual premiums for auto, household, healthcare, term plan, and personal accident coverage total INR 50,000 could see their premium outflow increase by INR 1,500 a year without increasing their coverage.
Increasing premiums may shorten the life of the insurance market in the short run. The net impact may likely be cushioned off in the future due to the universal nature of the increase and the indirect benefits that GST will bring with an improvement in disposable income.
When purchasing a two-wheeler insurance policy, consider the various options available, such as the features and benefits, the premium rate, the terms and conditions, the sum insured, etc.
When choosing or rejecting a bike insurance plan, premiums are not the only consideration to keep in mind. Due to GST, the premium will go up a little, but don't forget about the other benefits a two-wheeler insurance plan provides, including financial protection.