Electric Vehicles Above ₹25 Lakh Lose Tax Exemption Under New Karnataka Law

The Karnataka government has implemented sweeping reforms to its motor vehicle taxation structure through the newly passed Karnataka Motor Vehicles Taxation (Amendment) Act, 2025. The revised policy introduces a one-time lifetime tax system, replacing the earlier model of recurring annual taxes, and significantly alters how private and commercial vehicles—including electric vehicles (EVs)—are taxed across the state.

Also Read: Maharashtra Government Announces Bike Taxi Policy, EVs Mandatory

Under the new structure, private vehicles with a price tag below ₹10 lakh will now attract a one-time lifetime tax of 5%, replacing the former annual road tax of ₹1,800. Vehicles priced between ₹10 lakh and ₹15 lakh will be subject to a 9% lifetime tax, while those above ₹15 lakh will face a 15% tax. The government has also removed the phrase "the cost of which exceeds ₹10 lakh" from Sections 3(1)(d) and 4(1) of the existing taxation act. This change is expected to streamline tax applicability and potentially reduce the tax burden on high-cost vehicle owners by eliminating a cost-based threshold that previously triggered higher tax rates.

In a notable shift affecting the clean mobility sector, electric vehicles priced above ₹25 lakh—previously exempt from road tax—will now be taxed at a 10% lifetime rate. This move comes despite Karnataka’s earlier policy direction favoring tax incentives for electric mobility. In September 2024, a draft policy reportedly proposed full tax exemptions for electric and hybrid vehicles priced under ₹25 lakh, as part of a broader goal to drive ₹50,000 crore investment into Karnataka’s clean mobility ecosystem by 2029. The newly introduced tax for high-end EVs suggests a calibrated approach to balance revenue needs with green mobility incentives.

Also Read: Karnataka Unveils New Clean Mobility Policy For 2025-30

Commercial vehicles have also been brought under the ambit of the amended law. Motor cabs registered within Karnataka will now be taxed based on cost. Those costing up to ₹10 lakh will face a 10% lifetime tax, while vehicles priced between ₹10 lakh and ₹15 lakh will attract 9%. For motor cabs above ₹15 lakh, the tax rate has been fixed at 15%. Electric motor cabs exceeding ₹25 lakh will also be subject to a 10% tax. Vehicles registered outside Karnataka but operating in the state under permits defined in Section 88(9) of the Motor Vehicles Act, 1988, remain outside the purview of the new tax regime for now.

Construction equipment vehicles have also seen a restructured tax regime, with rates now determined by the vehicle's age. New construction equipment vehicles will attract an 8% tax, with rates rising progressively up to 25% for vehicles older than 15 years. This is expected to encourage fleet modernisation while accounting for the diminishing value and efficiency of older machinery.

The new law also includes provisions for tax refunds on deregistered motor cabs, based on the age of the vehicle at the time of deregistration. Refunds will range from 93% for vehicles deregistered within the first year to 25% for those deregistered between 14 and 15 years. This sliding refund scale aims to promote timely deregistration and encourage fleet turnover.