Karnataka to reimburse rent, property tax, power duty to lure IT firms outside Bengaluru

By lowering both capital and operating expenditure for the first three to five years, the state hopes to accelerate the formation of new tech clusters.

Karnataka has proposed a sweeping set of cost-reduction incentives under its draft IT Policy 2025-30 to shift technology investments beyond Bengaluru, offering companies reimbursements on rent, property tax, electricity duty, and telecom expenses if they set up operations in Tier II and Tier III cities.

Under the draft framework, IT and IT-enabled services units established in districts outside Bengaluru will be eligible for 50 percent rent reimbursement up to Rs 2 crore, 30 percent property tax reimbursement for three years, and a 100 percent waiver of electricity duty for five years.

The state will also reimburse 25 percent of telecom and internet charges up to Rs 12 lakh, a first-of-its-kind incentive designed to reduce operational overhead for smaller and mid-sized firms.

Most IT firms in Karnataka are concentrated in Bengaluru, and while the city generates significant revenue for the state and the country, its infrastructure is struggling to keep pace with the growing demand.

Also, read: Bengaluru losing GCC edge to Hyderabad, tier 2 cities due to infra woes

The incentive is part of a broader Rs 445 crore policy outlay over five years, with the Finance Department clearing Rs 345 crore for fiscal incentives and Rs 100 crore for interventions.

Aggressive fiscal push to build new tech hubs

The strategy is to move technology jobs and investments into cities such as Mysuru, Mangaluru, Hubballi-Dharwad, Kalaburagi, Belagavi, Shivamogga, and Davanagere.

The government has capped each reimbursement category at 100 applicants, indicating a targeted approach to seeding early anchor units in these regions.

The draft document said the rent and property tax reimbursements are intended to address a major cost barrier for IT firms evaluating expansion outside Bengaluru, where infrastructure gaps, lower talent density, and higher initial real-estate risk have historically slowed adoption.

By lowering both capital and operating expenditure for the first three to five years, the state hopes to accelerate the formation of new tech clusters.

Also, read: Karnataka's new IT policy eyes 90 lakh jobs by 2030, proposes return programme for overseas talent

Beyond Bengaluru central to new policy

The approach marks a significant shift from previous IT policies, which were heavily Bengaluru-centric.

Nearly all fiscal incentives in the draft policy, including hiring support, internship reimbursements, telecom subsidies, talent relocation support, and R&D incentives, are now extended to Beyond Bengaluru as core eligibility criteria.

Also, read: Karnataka IT Policy: Up to Rs 50 crore in R&D reimbursements, biggest state-level incentive in India

Industry push and labour readiness

The incentives come amid strong industry demand for alternative centres to ease pressure on Bengaluru’s strained infrastructure and tap a wider talent base.

As part of the broader policy, the government has also proposed labour relaxations, single-window clearances, and a unified digital platform to support IT operations across the state.

The proposals will be placed before the state cabinet for approval.

Also, read: Karnataka working on policy for deep tech startups, says IT minister Kharge