Karnataka plans tax breaks, incentives for hybrid vehicles

Karnataka plans to boost sales in clean mobility segment with this initiative

Karnataka, one of the leading states in India in the adoption of electric vehicles, is gearing up to roll out a comprehensive policy to promote clean transportation. The state’s new policy draft shows plans to significantly reduce taxes on hybrid vehicles and provide financial incentives to companies engaged in the clean mobility industry, including manufacturers of electric vehicles and their parts.

The proposed move marks a significant shift from India’s current emphasis on all-electric vehicles to include hybrids. The development could benefit carmakers such as Toyota, which has been lobbying for greater support for hybrid technology in India. Karnataka’s move could make it the second state after Uttar Pradesh to provide tax breaks for hybrid vehicles. The policy proposes to remove road tax and registration fees for hybrid cars priced below Rs. 25 lakh, currently a tax of 13% to 18% is levied.

The driving force behind hybrid cars

While India has largely prioritized electric vehicles in its clean mobility plans, new proposals in Karnataka introduce hybrid vehicles as a viable alternative. This is significant because hybrid vehicles, especially those from Toyota, combine a gasoline engine with electricity to reduce emissions without relying entirely on charging infrastructure. Plans to lower taxes on hybrid vehicles could give a new impetus to the segment, which lags behind electric vehicles in terms of policy incentives.

However, the move was not without controversy. Rival automakers such as Tata Motors and Mahindra & Mahindra, which have invested heavily in electric vehicle development, have expressed concern that promoting hybrid vehicles could dilute India’s focus on comprehensive electrification. Both companies stressed that incentives should continue to focus on electric vehicles, in line with national goals to increase electric vehicle sales and reduce reliance on fossil fuels.

Incentives for the clean mobility industry

In addition to the proposed tax cuts for hybrid vehicles, Karnataka’s draft policy also outlines a slew of financial incentives for manufacturers of electric vehicles, their components and charging infrastructure. Companies investing in clean mobility can receive incentives ranging from 15% to 25% of capital investment, depending on the size of the investment and the number of jobs created.

The state’s plan covers new factories and expansions of existing facilities, targeting key areas such as battery manufacturing and the production of electric vehicle charging equipment. This is likely to further enhance Karnataka’s status as a clean transportation technology hub, especially after the state previously announced a target of attracting up to $6 billion in clean transportation investments.

State-Level Electric Vehicle Investment Competition

Karnataka’s proposed policy comes at a time when Indian states are competing aggressively to attract investment in the electric vehicle industry. As Prime Minister Narendra Modi’s government pushes to increase the adoption of electric vehicles as part of the country’s strategy to fight pollution and reduce dependence on imported oil, some states have launched incentives for companies that produce electric vehicles and related infrastructure measure.

Total car sales in India reached 4.2 million units in the 2023/24 fiscal year, but sales of hybrid vehicles and electric vehicles were less than 100,000 units each. The national goal is to increase the share of pure electric vehicles in new car sales to 30% by 2030, a goal that requires coordinated efforts from the central and state governments.

Looking to the future

Karnataka’s clean transport policy, once finalized, is likely to provide a new model for balancing the promotion of hybrid and fully electric vehicles. By expanding the scope of clean mobility beyond electric vehicles, the state aims to accelerate the adoption of green vehicles while addressing concerns about infrastructure readiness for widespread use of electric vehicles. At the same time, the policy is likely to intensify the debate among industry stakeholders over the best future path for Indian automobiles.

As the state prepares to finalize and unveil its new clean transportation policy, industry players and environmental advocates alike will be watching closely to see how Karnataka’s approach impacts India’s broader shift toward sustainable transportation.

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