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The market price of electric vehicles (EVs) will rise by up to Rs 4 million, after the government changed the basis of taxation on the items via the announcement of budget for the next Fiscal Year (FY).

Through the new Finance Bill, the government has removed the old system of determining tax on the basis of the 'peak power' of the motor and implemented the policy of taxing on the basis of the customs value. Earlier, the taxes like customs duty, excise duty, road construction fee and value added tax (VAT) were levied on electric vehicles based on motor 'peak power'. But the government has implemented a new tax structure citing an increasing controversy regarding the actual capacity of motor 'peak power' and its declaration.

According to the new regime, all types of electric cars will now be subject to a flat 20 percent customs duty. Earlier, depending on the motor capacity, customs duty was levied between 15 percent and 80 percent.

Instead, the government has removed the old excise duty and replaced it with 'clean infrastructure investment duty'. This fee is determined based on the customs value of the vehicle.

According to the new regime, electric vehicles with a value of up to Rs 2 million at the customs point will now be subject to pay 2.5 percent clean infrastructure investment levy. Similarly, 20 percent clean infrastructure investment fee will be charged on vehicles priced between Rs 2-3 million.

Similarly, clean infrastructure investment fee will be charged at 35 percent for vehicles priced between Rs 3 million and Rs 4 million, a 90 percent for vehicles priced between Rs 4 million and Rs 5 million, and up to 130 percent for vehicles priced above Rs 5 million.

Along with this, the government rule talks about maintaining a five percent road construction duty on all electric vehicles along with a 13 percent VAT.

According to entrepreneurs, the price of entry-level electric vehicles will increase by around Rs 100,000. Likewise, the price of high range vehicles will increase by more than Rs 4 million.