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Budget 2021: What the vehicle scrappage policy means for private car owners, explained

The Indian automotive industry hopes that a country-wide scrappage policy, when implemented, will help boost sales. Will it really?

February 02, 2021 / 09:16 AM IST
Representative image (PC- MoneyControl.Com)

Representative image (PC- MoneyControl.Com)


Finance minister Nirmala Sitharaman announced in her Union Budget 2021 speech that the government intends to go ahead with a “Vehicle Scrappage Policy”. The policy has been in discussion for some time now, and while further details are awaited, it’s been made clear that the government intends to test-drive the policy by making it a voluntary endeavour before making it mandatory. So what does this policy entail?

What does the policy aim to achieve?

The idea is to phase out cars and commercial vehicles which are older than 20 or 15 years, respectively. This is being done in a bid to reduce urban pollution levels and galvanise automotive sales, which continue to suffer during India’s post-COVID recovery phase. This means that any private vehicle that’s older than 20 years will have to undergo a fitness test. A fitness test, according to the Finance Minister, will be conducted at automated fitness centres, which will determine whether the vehicle in question is qualified to run on roads, or headed for the scrap heap.

How does fitness test work?

According to the new policy guidelines, a vehicle will have to undergo a fitness test, after the accepted 20-year period. While it’s possible for the car to pass a fitness test and acquire a fitness certificate; each fitness test would cost approximately Rs 40,000. This is in addition to the road tax, and possible “Green Tax” that you have to pay while mandatorily renewing your private vehicle’s registration after the 15-year period.

Each fitness certificate is applicable for five years, after which the owner of the vehicle will be required to get another fitness test, costing the same. The financial cost of keeping a car in road-ready shape, alone would then dissuade the owner from constantly renewing the certificate.

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Are there any other costs involved?

Yes. The government has proposed a Green Tax, which requires you to pay 10-25 percent of your road tax every time you renew your fitness certificate. This means that, in addition to the fee you’re required to shell out for the test, you have to pay a considerable sum, which differs from city to city, based on their pollution levels. In the Delhi-NCR region, for example, the Green Tax, if implemented, would require the customer to pay 50 percent of the road tax, upon renewal of registration.

What happens if your vehicle does not pass the fitness test?

According to the law, it is illegal to drive a car that hasn’t passed a fitness test, as it is considered unregistered. One cannot circumvent a fitness test while going through the mandatory re-registration process, and if the vehicle fails the test, it is simply not registered, making it illegal to drive it on the road. The policy, which will be in effect from April 1, 2022, would also offer a monetary incentive to the owners sending their vehicles to the scrap heap, although if the vehicle fails the fitness test thrice, they wouldn’t be left with much of a choice.

Also Read: FM Nirmala Sitharaman opens government purse-strings to revive growth

More details, such as the setting-up scrappage docks/yards etc, are awaited. Under the proposed policy, over 51 lakh vehicles, both private and commercial are over 20 years old. Their removal from the roads will not only urge their owners to buy new vehicles, and possibly adopt newer technologies, like EVs, it will also help bring down vehicular pollution by an estimated 25 percent.
Parth Charan is a Mumbai-based writer who’s written extensively on cars for over seven years.
first published: Feb 1, 2021 08:48 pm

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