Finance

Understanding Green Tax: A Comprehensive Overview of Key Things to Know 

India faces some of the world’s highest air pollution levels, which present substantial risks to both public health and the economy. Lately, the concentrations of the most harmful pollutants from multiple sources have increased significantly. In response to the rising pollution and environmental concerns, the Government of India has introduced a green tax. 

In this guide, we will delve into the implications of the green tax, focusing on its role in mitigating the adverse effects of vehicular emissions.

What Is Green Tax? 

The Indian Government levies the green tax on pollution-causing goods or activities that negatively impact the environment, aiming to discourage harmful practices and promote environmental awareness. Also known as an environmental or pollution tax, it is a fixed liability that provides the government with the funds needed to support various environmental projects across the country.

What Are Green Taxes Levied On? 

The Central Government introduced the green tax in India to decarbonize the economy by targeting the following sources of pollution.

  • Emissions of Nitrogen Oxide (NO and NO2) from combustion engines
  • Noise generated by aircraft during take-off and landing
  • Earth manipulation and natural resource extraction and use
  • Emissions of Sulphur Dioxide (SO2) from burning petroleum and coal
  • Pesticides, fertilisers, acids and more causing water pollution 
  • Carbon dioxide (CO2) emissions 
  • Waste Management across domestic, commercial, industrial and construction sectors
  • Energy sources like petrol, diesel, natural gas and coal contributing to carbon emissions

What Are the Types of Green Taxes? 

Here are some of the types of green taxes imposed in India that you need to know. 

  • Carbon Tax: By targeting the carbon content of fossil fuels, this tax aims to reduce greenhouse gas emissions by increasing the cost of carbon-intensive activities.
  • Congestion Tax: Imposed in urban regions of India, it encourages the reduction of traffic congestion and air pollution while promoting the use of public transportation. 
  • Landfill Tax: It focuses on waste disposal in landfills, striving for reduced waste, increased recycling and better waste management practices.
  • Plastic Bag Tax: Usually levied during purchase, these taxes deter the use of single-use plastic bags and advocate for reusable options.

Green Tax for Vehicles in India 

Recently, India has introduced green tax initiatives, with a keen focus on monitoring vehicle emissions, especially at state border regions. As per the Supreme Court’s order, all ranges of vehicles are subject to a green tax or Environmental Compensation Charge (ECC), the amount of which is determined by their size. The tax liability differs from one state to another, with each state setting a distinct rate.

Things You Need to Know About Green Tax on Vehicles

Here are some key things that vehicle owners should be aware of regarding the green tax to ensure compliance with regulations and make informed decisions about their vehicles.

  • Personal vehicles will be subject to green tax if the owner renews the registration certificate after 15 years.
  • Vehicles that are registered in highly polluted cities such as Delhi will incur a higher green tax, set at 50% of the road tax, compared to cities with lower pollution levels.
  • Differential taxes will be levied based on the type of fuel (petrol/diesel) and the type of vehicle.
  • Vehicles such as electric vehicles, strong hybrids and those running on alternative fuels like ethanol, CNG and LPG will be exempt from green taxation.
  • The Indian Government has imposed a green tax on old vehicles because they contribute to environmental pollution by emitting excessive gases or smoke.
  • The government allocates the funds generated from the green tax to set up  emissions-monitoring facilities across India.

State-Wise Green Tax Liabilities 

The green tax liability for two-wheelers and other vehicle categories can vary depending on the state of residence of the vehicle owner. 

In India, commercial vehicle owners are required to pay a green tax, which generally ranges from 10% to 25% of their road tax amount. For instance, if the road tax is ₹6,000, the highest green tax you need to pay is ₹1,500. On the other hand, the green tax for private vehicle owners is 50% of their road tax amount. In this case, the green tax will be ₹3,000 if the road tax is ₹6,000. 

Here is a table outlining the green tax applicable to different types of vehicles in most Indian states. 

Type of Vehicle  Green Tax Liability 
Six-seater Taxis ₹1,250 approximately 
Service Vehicles 2.5% of the yearly tax amount
Auto Rickshaws ₹750 approximately 
Contract Buses 2.5% of the yearly tax amount
Light Goods Vehicles  ₹2,500 approximately 
Tourist Buses 2.5% of the yearly tax amount
Vehicles over 7,500 kg Capacity 10% of the annual tax

The Bottom Line 

The government’s initiative to introduce the green tax is a commendable step towards promoting sustainable transportation options and enhancing overall quality of life. Likewise, we must also prioritise safeguarding our environment as responsible members of society. To reduce the environmental impact of your vehicle, opt for vehicles with lower emissions and ensure timely payment of the green tax. 

 

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