The Karnataka government is planning to reduce levies and offer financial incentives to auto companies making hybrid cars and electric vehicles. The state government is also mulling the plan to cut the tax significantly for hybrid cars, which will boost the sales of cleaner fuel technology vehicles in the state. This move comes in line with the Uttar Pradesh government's step to make hybrid vehicles more affordable in the state which was announced earlier this year before the Union Budget.

Reuters has cited a draft proposal by the Karnataka government revealing that the state government is planning to boost the clean mobility sector there. While India has so far focused on exemptions for electric cars but not hybrid cars, this move could make Karnataka, the second state after Uttar Pradesh to provide tax sops for other electrified vehicles.

Interestingly, automakers such as Toyota and Maruti Suzuki who manufacture hybrid cars, have been advocating for tax breaks on such vehicles, claiming that these electrified vehicles emit fewer pollutants into the environment compared to their full fossil fuel-run vehicles. On the other hand, automakers such as Tata Motors and Mahindra have opposed this demand. They claimed that incentives for hybrids would hurt India's goals for EV adoption.

Watch: Do Hybrid Cars Make More Sense Than EVs In India? | All Things EV | HT Auto

Tax sops for hybrid and electric vehicles

Karnataka currently racks up India's third-highest sales of electric vehicles. In an attempt to boost the clean mobility sector in the state, the state government is aiming to drop road tax and registration charges for hybrid cars that cost less than ₹25 lakh, from the current 18 per cent to 13 per cent. However, these benefits will be available only on the string hybrid cars, not on mild hybrid models, which makes this policy similar to the one the Uttar Pradesh government introduced earlier this year.

Currently, the state road and registration taxes are charged on top of the five per cent GST on electric vehicles and 43 per cent taxed on hybrid vehicles. Besides reduction of road and registration charges for hybrid cars, the Karnataka government has also proposed financial incentives ranging from 15 per cent to 25 per cent of the investment made by companies in fixed assets, such as land and machinery, for new factories or to expand existing ones. These benefits will also apply to makers of battery components or EV charging gear, the draft showed.

Additionally, Karnataka plans to offer incentives of up to 25 per cent on capital investments by makers of electric vehicles or their components, varying according to investment size and the numbers employed.

The draft proposal states that the Karnataka government aims to boost clean mobility vehicle adoption via this strategy. In terms of clean mobility vehicles, the state government has mentioned electric vehicles and certain hybrid and hydrogen vehicles. However, the government has not revealed any deadline to finalise the policy.

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