Buyers may spurn EVs due to lifetime tax: Experts

A rude shock awaits electric car buyers in Karnataka with the prices of the vehicles set to increase by Rs 40,000-1.6 lakh, depending on the model, following the state government’s decision to impose lifetime tax on purchase of new cars as against tax exemptions offered earlier.

The Karnataka Motor Vehicles Taxation (Amendment) Bill, 2026, passed by both Houses of the Legislature recently, will levy a lifetime tax ranging from 5% to 8% on new electric cars that were hitherto exempted. Cars priced up to Rs 10 lakh will pay 5%, while those costing between Rs 10 lakh and Rs 25 lakh will have to fork out 8%. Electric cars priced beyond Rs 25 lakh already carry a 10% road tax.

“Karnataka, with around 22,950 e-PV registrations in FY26 (about 12% share), is the second-largest EV market after Maharashtra, making the proposed levy significant. The tax will increase upfront costs by around Rs 40,000-1.6 lakh, which can slow purchase decisions and increase comparison with ICE and hybrids, and the impact is less on interest and more on conversions at the final buying stage,” said Poonam Upadhyay, Director — Crisil Ratings.

She added that the earlier tax exemption translated into a clear upfront saving for EV buyers. Since ICE vehicles attract 8-20% road tax, electric car buyers were effectively saving Rs 1-2.5 lakh in the Rs 10-15 lakh segment and Rs 2-4 lakh in the Rs 15-25 lakh segment.

With EVs (cars) now potentially moving to 5-8% road tax range, this advantage reduces sharply, effectively cutting the upfront benefit by about half in key segments. She also cited Delhi, where after the road tax withdrawal in 2024, purchases were deferred in the near term before rebounding, as postponed demand returned and new launches improved the value proposition.

“For many in the entry and mid-segments, the tax benefit was one of the few clear advantages that helped offset the higher upfront cost of EVs. Without it, we could see more people delaying purchases rather than dropping out altogether,” said Sriram Kannan, CEO, Routematic, highlighting the pressure on price-sensitive buyers.

“With Karnataka set to roll back the road tax exemption, electric vehicles are set to become more expensive, and it is likely to influence buying sentiment, especially in the entry- and mid-segments,” said Hari Krishna, Founder and CEO, Green Drive Mobility.

“With e-PV penetration still around 5%, policy support remains critical. Its withdrawal can moderate near-term adoption momentum, even as broader structural demand for EVs remains intact,” Upadhyay told DH.

Sentiment across segments

Shreshth Mishra, Co-founder and Chief People Officer, Simple Energy, said, “The recent move to levy a lifetime tax on electric cars and buses in Karnataka does not directly affect two-wheelers, but it does set the tone for how policy can influence consumer sentiment across the EV ecosystem.”

All the carmakers that DH contacted declined to comment.

Transport Minister Ramalinga Reddy believes lifetime tax for all electric cars will not deter buyers, because the demand remains strong. “Bengaluru has 1.4 crore people and 1.3 crore vehicles. This suggests that the demand for personal cars remains strong. The decision to levy lifetime tax on all electric cars was taken on the recommendations of the resource mobilisation committee, which explored various avenues to generate additional revenue. Many states already levy such a tax on electric cars. But we are imposing nominal rates to reduce the burden on people,” he told DH.

Reddy clarified that the tax will not be levied on existing vehicles. The Amendment Bill will come into effect after a gazette notification soon, with the chief minister deciding on the timeline, he added.