The short answer to this question: Well, it depends. Now, let’s dive deeper and understand how the GST council’s clarification on ‘What is a SUV’ impacts car insurance.
Before we get into the definition of a SUV, we need to understand how car insurance premiums are arrived at.
Car insurance premium: The big factors
- The vehicle’s insured declared value (this generally depends on the vehicle’s on road price).
- Previous car insurance claims, if any (Any claim in the preceding year(s) voids the no-claim-bonus).
Of these two factors, getting a no-claim-bonus (by not making a claim the previous year(s)) would reduce the car insurance premium by less than 20 %.
The lion’s share of the car insurance (over 80 %) cost is still made up by the vehicle’s insured declared value (IDV) – the total amount for which the vehicle is insured.
Clearly, if the insured declared value of a vehicle is high, the premium would be higher, and if it’s low, the car insurance premium would be lower. IDV is usually benchmarked against a vehicle’s on-road price. *
Car insurance premium: Small but significant factors
Make and model of cars: Sports cars are riskier to insure, and consequently command more premium while family cars have a significantly lower premium.
Driver’s record: A driver with many previous claims will have to pay a higher premium than the one with a history of safe driving.
Safety features: Cars fitted with more safety and security features have lower car insurance premiums.
Coverage sought: If you want more kinds of risks covered, the car insurance premium rises accordingly. For instance, opting for flooded road protection will marginally increase premium. *
Now, where does the GST council’s definition of a SUV fit into this?
The GST council has defined that a SUV is a vehicle that meets all four of the following conditions: is popularly known as a SUV, has engine capacity exceeding 1,500cc; length exceeding 4,000 mm; has a ground clearance of 170 mm and above.
If your car confirms to all these conditions, the cess applicable is 22%, over and above the 28% GST that cars (except electric cars) are taxed under. So if your car is popularly called a SUV, measures more than 4 meters in length, has a ground clearance of 170 mm and has an engine bigger than 1,500 cc, it will be called a SUV by the government, and taxed at 50 %: 28 % GST plus 22 % cess. This is the highest amount of tax that a locally built car/SUV is subject to in India. *
How does this impact motor insurance premiums?
If your new vehicle falls under the GST council’s definition of SUV, it will be taxed at 50%, and this will result in a higher on-road price. A higher on-road price usually means a higher insured declared value, and this would translate into a higher insurance premium.
Now, if your new car escapes the SUV definition as all sub 4-meter SUVs would, the tax on it would be lower, and consequently, the on-road price and IDV would also be lower. Therefore, your insurance premium would be correspondingly lower. You can use Bajaj Allianz General Insurance’s car insurance calculator to calculate the car insurance premium. *
What happens to your older car/SUV?
Well, your IDV would be lower as every year results in the value of the vehicle decreasing due to depreciation. A lower IDV means lower insurance premium assuming that you get the benefit of a no-claim-bonus (NCB). Even if you aren’t eligible for a NCB due to a claim in the previous year, your insurance cost would still be lower thanks to the lower IDV. *
To sum it up, the GST council’s latest clarification for SUVs impacts insurance premiums of only new cars. SUVs that are defined as such will cost more to insure.
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
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