How car insurance premium is calculated in India: TP, OD, NCB, add-ons and GST

An Indian private car insurance premium is the sum of a few separate lines: the third-party (TP) premium, which depends mainly on engine capacity and is based on rates notified by the Ministry of Road Transport and Highways (MoRTH) in consultation with IRDAI; the own-damage (OD) premium, which each insurer calculates from your car's Insured Declared Value (IDV), age, zone and model, less your No Claim Bonus; the compulsory personal accident (PA) cover for the owner-driver; any add-ons you choose; and GST at 18% on the total. If two renewal quotes differ, the difference almost always sits in the OD line, the add-ons or the IDV, not in the TP line.

This is the pillar guide for this section. Each part below links to a deeper guide.

The lines on a renewal notice

A typical comprehensive (package) policy schedule shows these components:

Line	Who sets it	What changes it
Basic OD premium	Insurer, using its filed rates	IDV, vehicle age, cubic capacity, registration zone, model and claims experience
Electrical/non-electrical accessories, CNG/LPG kit	Insurer	Declared value of fitted items
Discounts on OD	Insurer, within its filed product	NCB, voluntary deductible, anti-theft device, automobile association membership
Basic TP premium	Central notification (MoRTH with IRDAI)	Engine capacity (cc) or, for EVs, motor power (kW)
Compulsory PA for owner-driver	Insurer, within the product	Fixed cover of ₹15 lakh; can be dropped only in specific cases
Optional covers	Insurer	Paid driver, unnamed passengers, add-ons
GST	Law	18% on the net premium

Only the TP line is the same across insurers for the same vehicle. Everything else is open to competition, which is why comparing quotes is worth the effort.

Third-party premium: the fixed part

The TP premium covers your legal liability for death or injury to other people (unlimited) and damage to their property, up to the limit in the policy. The base rates in force from 1 June 2022 for private cars are ₹2,094 (up to 1,000 cc), ₹3,416 (1,000–1,500 cc) and ₹7,897 (above 1,500 cc) a year, before GST. Increases have been discussed since 2025, but check the current notification before relying on these figures; see the third-party premium rates guide.

Own-damage premium: where most of the difference is

The OD premium is roughly the IDV multiplied by the insurer's rate for your car's age, engine size and zone, plus loadings for accessories or a CNG kit, minus discounts. Since 2007 OD pricing has been de-tariffed, so each insurer files its own rates with IRDAI.

IDV. This is the current listed price of your model and variant less an age-based depreciation (for example 30% for a car between two and three years old). A higher IDV means a higher payout if the car is stolen or written off, and a slightly higher OD premium. See the IDV guide.

NCB. For every claim-free year the OD premium (not the TP premium) falls by 20%, 25%, 35%, 45% and finally 50%. One claim normally sends it back to zero. See the NCB rules.

Voluntary deductible. Agreeing to bear a larger first part of every OD claim earns a discount on the OD premium. See choosing a voluntary deductible.

Worked example: rebuilding a renewal premium

This illustrative example uses a 1,197 cc petrol hatchback, 2 years 4 months old, current listed price ₹8,00,000, no claims for three years.

IDV: ₹8,00,000 × (1 − 30%) = ₹5,60,000.
Basic OD premium at an illustrative insurer rate of 2.2% of IDV: ₹5,60,000 × 2.2% = ₹12,320.
NCB at 35% (third claim-free year): ₹12,320 × 35% = ₹4,312. Net OD = ₹8,008.
TP premium (1,000–1,500 cc): ₹3,416.
Compulsory PA for owner-driver: illustrative ₹320.
Zero depreciation add-on at an illustrative 0.4% of IDV: ₹2,240.
Net premium: ₹8,008 + ₹3,416 + ₹320 + ₹2,240 = ₹13,984.
GST at 18%: ₹2,517. Total payable: about ₹16,501.

Now change one input at a time to see what moves the price:

Change	Effect on total (approx.)
IDV lowered by 10% to ₹5,04,000	OD and zero-dep lines fall; total drops by around ₹1,000
NCB lost after a claim	Net OD rises by ₹4,312; total rises by about ₹5,090 with GST
Zero dep dropped	Total falls by ₹2,240 + GST = ₹2,643
Car moves to a different insurer with a 1.9% OD rate	OD line falls; TP line stays the same

The TP line is unchanged in every case. If a quote is much cheaper, look first at the IDV and the add-ons.

GST and the final figure

Motor insurance for private cars and two-wheelers attracts 18% GST. The GST changes from 22 September 2025 exempted individual life and health insurance but left motor insurance at 18%. The same changes cut GST on many cars, which lowered ex-showroom prices; because IDV is based on the current listed price, some owners saw slightly lower IDVs at renewal. Always compare totals including GST.

What you can and cannot change

You control:

IDV within the band the insurer allows
Add-ons
Voluntary deductible
Insurer choice
Whether you claim small repairs (to protect NCB)
Anti-theft device discount, where offered for approved devices

You cannot change:

The TP rate for your engine size
The age-based depreciation slab
Loss of NCB after a paid claim
GST

When to get professional help

If your car is modified, used partly for business, registered in a company's name or has a CNG kit fitted after purchase, ask the insurer or an IRDAI-registered broker in writing how it should be declared. Wrong declarations are a leading cause of claim rejection.

Guides in this section

Frequently asked questions

Why is the TP premium the same on every quote?

Because the base TP rates are notified centrally for each engine-capacity band. Insurers cannot price it competitively, though a liability-only policy may include optional covers that change the total.

Does NCB reduce the whole premium?

No. NCB applies only to the own-damage premium. The TP premium, PA cover and most add-ons are not discounted by NCB.

Is a lower premium with a lower IDV a good deal?

Only if you accept a lower payout on theft or total loss. A 10% lower IDV on a ₹5,60,000 car means ₹56,000 less if it is stolen, to save perhaps ₹1,000 a year.

Can the insurer change my premium mid-term?

Not for the period already paid, except through an endorsement you request, such as adding a CNG kit or changing the address, which can add or refund premium.

Sources

IRDAI — regulations, circulars and the list of registered insurers
Ministry of Road Transport and Highways — notifications on motor third-party premium
Parivahan Sewa — vehicle registration details and insurance validity
CBIC GST portal — GST rate notifications