The Indian government charges a tax on the purchase of a new vehicle mainly to maintain the infrastructure of Indian roadways.
Vahan tax is basically authorities recovering funds spent on various activities like deploying safety and recovery services on India’s streets.
Why is Road Tax levied on buyers?
Indian roadways network is one of the largest globally, with a total length stretching over 5 million kilometres in 2019 and increasing (source).
To maintain the infrastructure of such a vast network of roads and provide basic amenities like street lights and road signs, the Indian government recovers expenditure in the form of a tax from vehicle owners in the country.
Funds collected are also spent on providing safety measures and emergency first aid in case a driver cannot evade on-road mishaps.
Further, this money is also used to expand the roadways network and upgrade highways and expressways as time goes by and more vehicles ply on the roads.
Therefore, while buying a new vehicle, buyers will have to pay a specific amount as road tax in compliance with Section 39 of the Motor Vehicle Taxation Act 1988.
Who levies Road Tax and why is it State Level?
In India, new-vehicle buyers will have to pay a road tax to the State government and the Central Government to maintain the country’s road networks.
However, as a prospective buyer, you will be paying road tax to the state in which you buy your vehicle and plan to drive as well.
What this essentially means is that you will be paying a road tax to the Delhi government when you buy a bike or car in the state.
Further, if you move from Delhi to Maharashtra, you will need to pay the Maharashtra state government a state road tax within a month of moving.
The primary reason for the state government’s involvement in collecting road taxes is that the State Municipal Corporation is in charge of developing and maintaining the road network within a state.
Only national highways (NH) are built and maintained by the Central Government.