Karnataka Pulls Plug On EV Tax Incentives For Models Above Rs 25 Lakh

The argument between electric vehicles (EVs) and gas-powered cars has grown stronger over the years. To encourage the use of battery electric vehicles, the Government of India and various state governments have offered subsidies to manufacturers, which have helped consumers save money.

However, the Karnataka government is trying something different. A recent CNBC TV18 report states that the state has introduced a new one-time lifetime tax system under the updated Karnataka Motor Vehicles Taxation Act of 2025.

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New Lifetime Tax System for EVs in Karnataka

The government of Karnataka has rolled out a new lifetime tax policy for vehicles, moving away from the previous model that required annual payments.

Summary of Changes:

Vehicles Priced Under Rs 10 Lakh: These will now be subject to a one-time lifetime tax set at 5%, replacing the former annual tax of Rs 1,800.
  
Vehicles Priced Between Rs 10 Lakh and Rs 15 Lakh: A one-time lifetime tax of 9% will be applied to these vehicles.
  
Vehicles Priced Over Rs 15 Lakh: A lifetime tax rate of 15% will now be enforced.

Electric Vehicles Valued Over Rs 25 Lakh: Previously exempt from road tax, these vehicles will now face a 10% lifetime tax.

Additional Tax Adjustments

Elimination of the Rs 10 Lakh Cost Condition: The removal of the clause stating "the cost of which exceeds Rs 10 lakh" from Sections 3(1)(d) and 4(1) may decrease the tax liabilities for premium vehicles.

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Revised Tax Rates for Construction Equipment Vehicles: The lifetime tax for these vehicles is determined by their age, starting at 8% for new vehicles and reaching up to 25% for those that are older than 15 years.

The tax structure for motor cabs registered in Karnataka has been updated:

• Cabs that cost up to Rs 10 lakh will incur a lifetime tax of 10%. 
• For those priced between Rs 10 lakh and Rs 15 lakh, the tax rate is 9% for the lifetime of the vehicle.
• Cabs valued over Rs 15 lakh will be taxed at a rate of 15%.
• Electric motor cabs that exceed Rs 25 lakh in price will face a lifetime tax of 10%.
• It's important to note that these revisions apply solely to vehicles registered within Karnataka and do not impact those operating under permits issued outside the state according to Section 88(9) of the Motor Vehicles Act, 1988.

Refund Policy for Deregistered Motor Cabs

When a motor cab is deregistered, the refund amount depends on how old the vehicle is. If the cab is deregistered within the first year, you'll get back 93% of its value. For cabs between 14 and 15 years old, the refund will be 25%.

In September 2024, the Karnataka government began working on a new electric vehicle (EV) policy to promote clean transportation over the next five years. This plan includes attractive incentives for both buyers and manufacturers to make Karnataka a top place for EV production.

One important feature of the policy is that electric and hybrid vehicles priced under Rs 25 lakh will be exempt from road tax, making them more affordable. The government aims to secure Rs 50,000 crore in investments in clean mobility by 2029.