How Much Money Does A State Make Out Of Your Car And Fuel Related Taxes? Here's An Example

Buying a car is probably the second biggest expense in most people's lives, the first being owning a home. In India, cars do not come cheap, nor do their ownership! Our systems are so designed that the government makes a sizeable sum when a new car is purchased. How much do they make you ask? Well, a recent example would help you understand more about this.

The latest data reveals that Kerala has generated more than Rs 68,547.13 crores from the mobility sector alone, during the tenure of the second Left government. This includes the taxes levied on new vehicle purchases, fuel sales, road tax, registration fees, and even through VIP number sales. The state generated a massive Rs 539.40 crores by selling VIP numbers alone!

The south Indian state has been witnessing massive automotive purchases, across segments, in the past five years. It earned Rs 3165.93 crores in registration fees of newly bought vehicles, while re-registering old vehicles brought in 1851.36 crores. Road taxes levied during 2021-2025 amount to Rs 21,431.96 crores.

Looking at a deeper split, the transport sector posted 18,033.72 crores while non-transport vehicles posted 3398.22 crores. These figures were disclosed in a notification sent in response to a Right To Information (RTI) querry.

The road tax is something that every vehicle owner would need to pay, but is also something that varies with states and Union Territories. Kerala, as it is the state in question, has a unique way of levying road tax. Vehicles with low purchase value enjoy a lower road tax slab, while those costing above Rs 20 lakh, are taxed heavily.

This can be tricky in modern times, as even a Kia Seltos X-Line (with a 1.5L engine) with an ex-showroom price of Rs 20.56 lakh, will have to pay 22% in road tax, while the lower variant of the same with an ex-showroom price of 19 odd lakh will only have to pay 17 percent. To put things more into perspective, someone opting for the variant that costs 19.90 lakh, would end up paying 3.38 lakh in road tax, while those opting for the 20.5 lakh variant will have to pay 4.5 lakh- a significant jump upwards, for exactly the same product!

The 10-20 lakh segment in the Indian automotive space has been witnessing massive traction in recent times, and the number of those opting for higher segments are also on the rise- more opportunities for the state to make money!

Kerala, as a matter of fact, imposes high taxes and Cess on the automotive sector. Even the fuel sales are Cess-ed at a sizeable rate. The state's sales tax on petrol stands at 30.08%, while an additional tax of Rs 1/L and a 1% state Cess is also charged. For diesel, the sales tax stands at a lower 22.76%, while the rest remains the same as above.

The state has been levying an additional Cess of Rs 2 on every liter sold, from April 2023. This was originally intended to finance the state's social security pension. Reports show that the state Cess amounted to Rs 954.52 crores in the year 2023-24 and Rs 977.78 Crores in 2024-25.

Interestingly, it isn't just the state governments that levy taxes on fuel sales. The central government recently announced an upward revision in the excise duty on petrol and diesel, which has taken the figures to Rs 13/litre and Rs 10/litre, respectively, with effect from April 8, 2025. Now you know why petrol and diesel are so expensive in our country!