Old vehicle owners may have to pay up to ₹3,800 per year as ‘Green tax’

• The Union Minister Nitin Gadkari-led for Road Transport and Highways Ministry has approved the proposal to levy the tax on older vehicles.
• The tax could be as high as 50% of the road tax in most polluted cities like Delhi.
• The policy will only apply for petrol and diesel vehicles in a bid to protect the environment and curb pollution.
• The government said that the Green tax aims to dissuade people from using vehicles that damage the environment and motivate them to switch to newer, less polluting vehicles.

If you own a vehicle older than 8 years in India, you will soon have to pay ‘Green tax’ to keep it. The Union Minister Nitin Gadkari-led Road Transport and Highways Ministry approved the proposal to levy older vehicles' tax. It will now be sent to the states for consultation before it is formally imposed.

The tax could be as high as 50% of the road tax in most polluted cities like Delhi.

For commercial vehicles older than eight years the ‘Green tax’ would be charged at the time of renewal of fitness certificate at the rate of 10 to 25% of the road tax, and personal vehicles are to be charged green tax at the time of renewal of registration certification after 15 years. Public transport vehicles like city buses will be charged lower, while a higher tax will be imposed for vehicles registered in highly polluted cities, the ministry said in a statement.

The policy will only apply for petrol and diesel vehicles in a bid to protect the environment and curb pollution. Whereas other vehicles like strong hybrids, electric vehicles and those running on alternate fuels like CNG, ethanol and LPG will be exempted, the Ministry of Road Transport and Highways added.

The Green tax's revenue would be kept in a separate account and used to tackle pollution and set up state-of-the-art facilities for emission monitoring.

Push people to buy new vehicles

The move comes at a time when the auto sector is recovering from the worst of the pandemic. The government said that the Green tax aims to dissuade people from using vehicles that damage the environment and motivate them to switch to newer, less polluting vehicles.

But according to IIFL, this will have a negligible impact on the sales of new personal vehicles. The report highlighted that a tiny percent of owners use cars and two-wheelers beyond 15 years of age and an even smaller proportion goes for renewal of registration certificates.

Although the government hasn’t quantified the green tax for personal vehicles, even if we assume the green tax to be 10-25% of road tax — which is currently around 10% for a lifetime — “it would work out to 1-2.5% of the original vehicle price.” the IIFL report added.

Green tax payable for personal vehicles
Source: IIFL report

However, it may have a certain impact on the commercial vehicle owners. According to ministry estimates, the commercial vehicles constitute about 5% of the total vehicle fleet and contribute about 65-70% of total vehicular pollution.

The older fleet, typically manufactured before the year 2000 constitute less than 1% of the total fleet but contributes around 15% of total vehicular pollution. “These older vehicles pollute 10-25 times more than modern vehicles,” it said.

According to IIFL, the commercial vehicle owners may have to pay up to ₹3800 in Maharashtra per annum, if they decide to keep the vehicle post the green tax exemption date.

Green tax payable for commercial vehicles
Source: IIFL report *Road tax p.a. is taken for Maharashtra

The government also approved the policy of deregistration and scrapping of vehicles owned by the government, which are above 15 years of age, and will come into effect from April 1, 2022.

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