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Understanding Road Tax: How It Works and Why It's Important

Published On Aug 17, 2023

Understanding Road Tax: How It Works and Why It's Important

On a smooth white-topped road with low traffic density, driving can be a pleasure. However, being caught in a traffic jam or riding through a bad road with potholes can elicit feelings of disgust. It's frustrating to think that despite paying a hefty road tax, one still has to endure such ordeals. In the tangled web of modern society, where governance and technology are interwoven, there is one persistent issue that preoccupies the minds of citizens and policymakers alike: Road Tax. It is an ongoing concern that needs to be addressed.

Why Road Tax is Necessary?

Funds received from road tax go primarily towards the maintenance and development of road infrastructure. The following are some important points:

Understanding Road Tax: How It Works and Why It's Important

  • Widening of roads to accommodate increasing traffic
  • Building of flyovers for faster travel
  • Installation of various road signs and direction boards
  • Incorporating traffic signal lights at intersections
  • White topping of roads to enhance their life
  • Fixing roads by covering potholes
  • Monitoring of road traffic using video cameras at important intersections This will help decide the future works to be carried out
  • Road lighting
  • Medical assistance in case of accidents
  • Imposition of a fine in cases of traffic offences

How does it work?

When you buy a new vehicle, you must pay a road tax or vehicle excise duty (VED) imposed by the government. This amount goes to the government. The amount collected is used for various purposes as detailed above. However, the effect of this expenditure is much more than what is described. 

Determination of Road Tax for a vehicle

Different parameters are used to determine the Raod Tax for a vehicle. A few of the important points are given below

  • Whether used for personal or commercial purposes
  • Seating capacity
  • Age of vehicle 
  • Cost of vehicle
  • Type of fuel used
  • Engine capacity

The above parameters are valid for ICE (Internal Combustion Engine) vehicles using petrol or diesel as fuel. Another category is CNG (Compressed Natural Gas) vehicles. As a cleaner fuel alternative, road tax varies from state to state.

Electric Vehicles

Electric vehicles (EVs) constitute a new era of mobility. This category includes two and three-wheelers and cars. In line with the government's policy of keeping emissions to a minimum, some states have a 100% exemption from road tax for these types of vehicles. This is a clear indication of future government policy. Eventually, even buses and trucks could be included in the EV category.

For the same capacity, the weight of an EV is less as compared to an ICE. This will result in less wear and tear on the road. The government may lower road tax in the future when a significant number of EVs ply our roads.

Why is Road Tax Important?

Road Tax is the collection of money to finance the various activities described previously. Apart from these, other intangible benefits accrue to society in general :

Road tax is collected to finance various activities as described previously. Apart from these, other intangible benefits accrue to society in general, including:

  • It encourages individuals to explore alternate forms of transport such as carpooling and cycling. This helps mitigate environmental impact.
  • It encourages the usage of more fuel-efficient vehicles. Some states have lower tax rates that act as an incentive for using greener vehicles.
  • Fewer accidents as more safety features on roads could be incorporated. 


India's projected high growth rate, in the future, will lead to increased traffic and require continuous improvements in road infrastructure. Road taxes are a major source of funding for these improvements. In addition to this, there is also a social responsibility to reduce emissions. Numerous studies have linked emissions to climate change, which is affecting regions across the world. Therefore, by offering incentives in the form of lower Road Tax, we can help mitigate the effects of climate change. When purchasing a new vehicle, it is advisable to reach out to authorized representatives who can provide a comprehensive view of the Road Tax.


Q. Where does the money we pay as Road go to?

A. Road Tax is a state subject.  The money you pay goes to the coffers of the respective state government.

Q. Where can I pay the Road Tax?

A. Road Tax is paid to the RTO (Regional Transport Officer) office for the jurisdiction and is paid at the time of registration of the vehicle. However, many showrooms will arrange to pay the same on your behalf and add the Road Tax to your final bill.

Q. Are all the roads in the state maintained by the funds collected by Road Tax? 

A. The roads covered are all roads except the National Highways, which are maintained by the Central government. The tolls collected at the entry/exit points are used for the maintenance of national Highways. 

Q. How much is the Road Tax for a vehicle?

A. As mentioned in this blog, there are several factors that determine the Road Tax. Furthermore, this tax may vary from state to state for the same vehicle. Please check this aspect at the time of purchase. 

Q. What is LTT (lifetime tax)?

A. It is the amount of money that you pay along with the registration charges when buying a new vehicle. Once paid, you do not have to pay Road Tax for the lifetime of the vehicle. It is very convenient as you do not have to pay yearly instalments like insurance.


This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.
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