Budget 2021 – Vehicle Scrappage Policy

The auto sector which witnessed a colossal slowdown because of the pandemic, has some good news to be happy about. Finance minister Nirmala Sitharaman proposed a few changes that will impact the vehicular movement of our country in the coming years.

The drive has been kept voluntary so far, it implies major changes to not only reduce the pollution but also introduce more public transport facilities in the country.

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Main aim behind policy  

Over one crore old light, medium and heavy motor vehicles are estimated to be covered. Old used vehicles cause 10-12 times more pollution than the new vehicles. This new policy aims to invest Rs.10,000 crore and create as many as 50 thousand jobs.

The cars with a life of more than 20 years and commercial vehicles with more than 15 years will be phased out. There shall be fitness tests to be conducted at automated fitness centres to determine whether the vehicle in question is fit to be run on roads. Urban pollution, another major concern that will be taken care of.

The FM announced a capital investment of Rs.5.54 trillion for developing infrastructure which could lift the demand for heavy and medium commercial vehicles.

The youth might see more job opportunities and the policy will make it easy to be mobile in cities. Fuel efficient and environment friendly vehicles will get promoted and bus segment will have a greater support. The govt will spend Rs.18,000 crore to help augment public transport.

As more old vehicles get scrapped, a demand for automobile industry will go as high as Rs.6 lakh crore from the present 4.5 lakh crores.

How will the fitness tests be conducted?

Any privately owned car will have to undergo a fitness test which already had a life of 20 years. If the test is cleared, a fitness certificate will be issued. The test cost will be around Rs. 40 thousand for the same. The certificate will be valid for a period of five years after which the fitness test will be conducted again. The cost of keeping the vehicle in ‘road-ready’ shape might discourage the owners to keep a car itself.

What if the vehicle fails the fitness test?

The car failing the test will be equal to an unregistered vehicle. Any car cannot be run on the road unless it passes the fitness test, forcing it to be taken as an illegal/unregistered vehicle. The vehicles failing the test shall be taken to the scrap heap. The policy will however offer a monetary incentive to the owners sending their vehicles to the scrap heap. But for those vehicles which fail the fitness test, there shall be no other option except sending them as a scrap.

Recycling of waste metal, reduction in air pollution, lower imports of oil because of introduction of fuel efficient vehicles etc are considered as parts of the policy.

Green Tax

The cost of fitness test after the 20 years accepted period will be Rs.40,000. This is in addition to road tax and Green tax. Green tax is a mandatory tax to be paid, 15 years after the registration of the vehicle to renew it. Last month the government had said that it has plans to impose green tax on old polluting vehicles to curb pollution. Strong hybrids, electric vehicles and the vehicles running on alternate fuels like CNG, ethanol and LPG will be exempted. The collection thus made by way of green tax will be used to tackle the issue of pollution.

Transport vehicles older than eight years could be charged green tax at the time of renewal of fitness certificate @ 10 to 25 percent of road tax.

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Krishna Rath is a SEBI Registered Investment Adviser, and since 2015 has been educating netizens on investments and insurance. Krishna is a fee only SEBI RIA and is Odisha's first SEBI RIA. With background in IT, Krishna is changing the advisory space with new innovations in AdvisoryTech.

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