Karnataka Plans Hybrid Car Tax Relief and EV Subsidies

Nitin Konde, Apoorva Bajj

Sep 30, 2024 — 3 min read

Karnataka Plans Hybrid Car Tax Relief and EV Subsidies

Karnataka, the southernmost state of India, intends to reduce taxes and provide financial incentives to companies in the clean mobility sector. This includes a substantial tax reduction for hybrid vehicles, which will be advantageous for Toyota, according to a draft document from the state government.

The state of Bengaluru, which is home to the tech hub, could become the second in India to offer tax breaks to hybrid vehicles, following northern Uttar Pradesh. Toyota has lobbied New Delhi for these incentives, despite the fact that India has primarily focused on exemptions for electric cars.

According to a draft seen by a media house, Karnataka, which has the third-highest sales of electric vehicles (EVs) in India, wants to eliminate road tax and registration fees for hybrid cars that cost less than $30,000 from their current 13% to 18%.

Applauding this move, Rajeev YSR, CEO, Thunder Plus stated, "Karnataka's recent initiative to offer tax waivers for hybrid cars and financial incentives for electric vehicles marks a significant step toward advancing clean mobility in India. This proactive approach aligns with the state’s vision to promote sustainable transportation solutions while enhancing the appeal of both hybrid and electric vehicles. At ETO Motors and Thunder Plus, we are excited about this development, as it creates a favorable environment for the growth of the electric vehicle market. We already have 300+ electric 3 wheelers crisscrossing the busy roads of Bangalore adding 0 carbon emissions as they run; and are supported by 100+ electric vehicle charge points."

No timetable was specified in the draft policy to finalize and announce the policy, but it stated that the state seeks to increase "clean mobility vehicle adoption," which includes EVs, select hybrids, and hydrogen-based vehicles.

Rivals like Tata Motors and Mahindra & Mahindra, which prefer to maintain the emphasis on EVs and claim that incentives for hybrids will undermine India's ambitions for their adoption, are in conflict with Toyota's effort. Federal sales tax is 5% for electric vehicles and up to 43% for hybrid vehicles. State road and registration fees are additional costs.

Additional Incentives for Makers of Electric Vehicles and Their Components

Furthermore, as per the draft, Karnataka intends to provide incentives to manufacturers of electric vehicles or their components, with the amount of the incentives depending on the magnitude of the investment and the quantity used. The incentives may be as high as 25%.

According to the proposal, Karnataka is expected to provide financial incentives to companies that invest 15% to 25% of their profits in fixed assets, such as land and machinery, for the establishment of new factories or the expansion of existing ones. According to the draft, this will also apply to companies that manufacture battery parts or EV charging equipment.

The state government has already stated that it intends to use a clean transportation policy to attract up to $6 billion in new investments, but it has not disclosed any further information.

Tug of War Between the Indian States

In keeping with Prime Minister Narendra Modi's focus on encouraging the use of such automobiles to reduce pollution and lower the cost of gasoline imports, Indian states are competing with one another in terms of investments and tax incentives to entice the EV business. In the fiscal year 2023–2024, India sold 4.2 million cars, of which fewer than 100,000 were hybrids and electric vehicles. The goal for India's new car sales market by 2030 is to increase the proportion of electric vehicles to 30%.