Karnataka has proposed one of the country’s most ambitious research-linked incentives under its draft IT Policy 2025-30, offering companies a reimbursement of up to Rs 50 crore on advanced innovation and R&D spending.
The scheme, which reimburses 40 percent of eligible research and development (R&D) expenditure, is the highest state-level support for technology research in India.
This is important for India because a state-backed R&D subsidy of this scale can accelerate the country’s shift from a services to high-value technology innovation, strengthening its global competitiveness in deep tech and advanced engineering.
In this regard, Karnataka’s Information Technology Minister Priyank Kharge said, on September 12, that the state is mulling a new policy that would allow deep tech startups to pilot their solutions with government departments.
If the pilot proves successful, the state will endorse the technology to encourage wider adoption.
R&D cap raised from Rs 1 cr to Rs 50 cr
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.
The R&D programme alone accounts for Rs 125 crore in allocations, making it a centrepiece of the policy.
Under the proposal, companies in Bengaluru and beyond Bengaluru can claim reimbursements on qualified R&D activities up to the Rs 50 crore cap.
The government has advised scaling the number of beneficiaries or unit costs based on fiscal prudence, but the incentive represents a significant jump from the earlier limit of Rs 1 crore per company under the previous IT policy (2020-25).
AI, cybersecurity, next-gen connectivity
The push is aimed at positioning Karnataka as India’s leading deep-tech innovation hub.
The policy emphasises emerging technologies such as artificial intelligence, cybersecurity, extended reality, next-generation connectivity, blockchain, digital health, and advanced data analytics.
It also encourages companies to shift from service-led models to product-centric innovation and early-stage prototyping to scalable technology development.
Rs 125 cr earmarked for R&D incentives
For industry, the enhanced R&D incentive strengthens Karnataka’s competitiveness at a time when states are racing to attract global capability centres (GCCs), AI labs, and engineering R&D (ER&D) investments.
Also, read: Infra, talent, tax breaks: What Karnataka, Telangana, Tamil Nadu want from Centre’s Tier-II GCC policy
Bengaluru already hosts more than 5,500 IT and IT-enabled services firms, including about 750 multinational corporations, and accounts for the highest share of India’s software exports.
Shift from services to product-led innovation
The new policy framework seeks to build on this base by driving deeper innovation in both Bengaluru and tier-two hubs such as Mysuru, Mangaluru, Shivamogga, Hubballi-Dharwad, Kalaburagi, Belagavi, Tumakuru, and Davanagere.
Also, read: India’s top IT firms lean towards IP-led growth as Gen AI shrinks the pyramid
It also aligns with the state’s strategic goal of raising IT’s contribution to Gross State Value Added from 26 percent to 36 percent over the next five years.
The proposal will now be placed before the state cabinet for approval.
Also, read: Karnataka's new IT policy eyes 90 lakh jobs by 2030
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