Two-wheeler insurance is a type of vehicle insurance specifically designed for motorcycles and scooters. It provides financial protection against any damage or physical injury caused by traffic collisions and against liability that could also arise from accidents. Two-wheeler insurance policies are mandatory in India if you want to ride a bike or a scooter on public roads.
The insurance sector is one of the most important industries in India, and it is regulated by the Insurance Regulatory and Development Authority of India (IRDAI). After implementing the Goods and Services Tax (GST), there have been some changes in how insurance companies operate. Before we go ahead and take a look at some of the key differences in the two-wheeler insurance sector post-GST, let us understand what the Goods and Services Tax is.
What is the Goods and Services Tax?
Before Goods and Services Tax (GST) was introduced in India in the year 2016, we had a unique and different kind of taxation levied indirectly, called the indirect tax system. This was a very complex form of taxation that made it hard for the government to monitor as well as manage tax evasion offenders.
This GST bill integrates the taxes levied on goods and services by the Center, the States, and the Union Territories, with the ultimate goal of incorporating them into the GST. The Goods and Services Tax (Integration) Bill of 2016 has among its objectives the creation of an Integrated Goods and Services Tax (IGST) in the country.
On supplies of goods and services made between states, the IGST will be imposed by the Central Government and collected by that body. The integrated goods and services tax (IGST) that was collected by the Central Government will be transferred to the States.
The Goods and Services Tax (GST) is divided into five tiers based on the percentage levied based on the product or goods sold. The lowest is 0%, then 5%, 12%, 18%, and the highest tier is 28%.
What is the Effect of GST on the Two-wheeler Market?
The primary effect that the Goods and Services Tax (GST) has had on the market for two-wheelers has been to drive up the cost of insurance premiums for motorcycles. As indicated earlier, the previous tax system imposed a 15% tax rate on the cost of bike insurance premiums.
The premium for a bike insurance policy goes up ever-so-slightly whenever there is a change in the tax rate. On the other hand, digital insurers adhere to a business model known as the DTC or the direct-to-customer model, where they provide their services solely through an online platform since the operational costs have been reduced due to the utilisation of a commission-free business model and an entirely digital infrastructure.
The operating cost of the direct-to-customer model is low due to the lack of overheads, such as having middlemen who tend to push the costs higher like the insurance agents. All of the money that the company saves is being passed on to the customer in the form of lower-priced two-wheeler insurance policies. This helps the company negate the cost increase on the premiums due to the tax rate hike.
Key Points on Two-wheelers and GST
1. The GST on bike insurance premium is 18%. This increased the premium cost by 3%.
2. Bike insurance is regarded as a service by the government as it does not sell any physical product that can be regarded as goods. Hence, it gets taxed under the services classification. So, when you pay the premium for your two-wheeler, the goods and services tax (GST) gets applied automatically since it's an indirect tax on the bike insurance policy.
3. Before the Goods and Services Tax (GST) was introduced, the two-wheeler sales tax rate was set at 30%. Because of the Goods and Services Tax (GST), there are now distinct tax rates for two-wheelers with an engine size of less than 350cc and those with an engine capacity of more than 350cc. The tax rate for electric two-wheelers or electric cars used to be 12%. However, beginning August 1, 2019, it has been reduced to 5%.
4. Bike insurance policy buyers can directly benefit from the tax saving, which is possible in some cases, such as if you are a business owner. This cost-saving can be obtained by furnishing the Goods and Services Tax number details.
Two-wheeler Insurance policy buyers who are purchasing the vehicle insurance under their company name can opt for this saving while filing taxes. These savings are passed on to them while claiming for tax returns.
The advantages you will receive from motorcycle insurance are unquestionably more valuable than any tax percentage. When shopping for a policy to cover your motorcycle or scooter, you need to pay attention to several specific details. Sometimes, paying a higher premium is actually in your best interest. Your insurance coverage should protect you adequately in the event of a wide variety of adverse occurrences.
You are responsible for thoroughly understanding the coverage provided by the policy, its terms and conditions, benefits and features, and any exceptions. Don't skimp on the essential protections your policy offers, even if doing so requires an increase in the GST you have to pay. There is no doubt that the increase in the cost of premiums has led to an increase in competition in the insurance market. As a result, insurance companies are in a race to improve their products and offer more to customers.
Although this might be a good thing for those looking for insurance, you must not get swayed by their marketing and instead conduct a rational analysis of the products they offer compared to the other products on the market.
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