Nepalese capital of Kathmandu and Algerian capital of Algiers were the other locations among the world's five cheapest cities, the Economist Intelligence Unit's (EIU) worldwide cost of living index found.
The EIU found that Mumbai shared the top ranking with Karachi in the survey based on costs of over 160 items ranging from transport, utilities, food and clothing.
"Income inequality means that household spending levels are low on a per capita basis, which has kept prices down, especially by Western standards," the EIU said in reference to India in its 2013 survey, which ranked Tokyo as the most expensive city in the world.
Other cities in this year's top five included another Japanese city, Osaka, followed by Sydney, Oslo and Melbourne.
Australian cities rank high mainly due to inflation and currency swings among the 131 cities surveyed, Jon Copestake, editor of the index, said.
Asia and Australasia account for 11 of the world's top 20 most expensive cities, with eight from Europe and one from South America.
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Tokyo displaces Zurich to No 7 as a result of steep real estate costs and rents, as well as high wages fuelling prices.
Besides Zurich, Singapore, Paris, the Venezuelan capital of Caracas and Geneva complete this year's top 10.
Although no North American cities feature in the top 20, the EIU said the cost of living in New York had risen relative to other places in the US. It shares 27th position as the most expensive US city with Los Angeles.
The Canadian city of Vancouver remains the most expensive location in North America, ranked 21st in the index.
The bottom 10 includes Bucharest in Romania, Colombo in Sri Lanka, Panama City, Jeddah in Saudi Arabia and Tehran in Iran.