Karnataka Withdraws Tax Exemptions for Electric Vehicles, Increasing Costs

Karnataka Ends Tax Exemptions for Electric Vehicles

The Karnataka government has formally ended tax exemptions for electric vehicles (EVs) in the state with the notification of the Karnataka Motor Vehicles Taxation (Amendment) Act, 2026, on April 10. The move received Governor's assent on April 9.

Tax Structure Linked to Vehicle Cost

According to the amended law, lifetime tax at the time of registration will now be linked to the cost of the vehicle. Electric vehicles (EVs) priced up to Rs 10 lakh will attract a 5 percent tax, those between Rs 10 lakh and Rs 25 lakh will be taxed at 8 percent, and vehicles above Rs 25 lakh will attract 10 percent tax.

| Tax Bracket | Vehicle Price (Rs) | Tax Rate (%) | | --- | --- | --- | | 1 | Up to 10 lakh | 5 | | 2 | 10 lakh - 25 lakh | 8 | | 3 | Above 25 lakh | 10 |

Electric two-wheelers, however, will continue to remain exempt from this tax. The move is expected to generate an additional revenue of around Rs 250 crore for the state.

Pre-Buying Spike Ahead of Rollout

Data from the Vahan portal shows a rise in EV registrations in March, likely driven by buyers advancing purchases ahead of the tax change. Registrations increased from 3,972 units in January to 3,606 in February and 4,663 in March.

Shift from Earlier Policy

Karnataka had so far levied lifetime tax only on EVs priced above Rs 25 lakh. The state had originally exempted all EVs from road tax in March 2016 to promote adoption. The rollback marks a significant policy shift, especially at a time when many consumers are considering a transition to electric mobility amid rising fuel costs linked to global geopolitical tensions.

Industry Concerns

The move has raised concerns among EV manufacturers and prospective buyers, with industry stakeholders warning that higher upfront costs could slow adoption and impact the state's EV growth momentum. Karnataka is the fourth-largest vehicle market in India, after Uttar Pradesh, Maharashtra, and Tamil Nadu in terms of registrations. While most states offer tax exemptions or concessions for EVs, some-including Gujarat and Kerala-continue to levy taxes.

Motor vehicle tax remains a key revenue source for the state. Karnataka already levies one of the highest road taxes in the country, ranging between 13 percent and 18 percent for internal combustion engine (ICE) vehicles.