Karnataka’s freshly approved IT Policy 2025–2030 is poised to relieve the financial burden on early-stage startups by promoting operations in Tier-II cities beyond Bengaluru.

With a total outlay of ₹967 crore, including ₹754 crore dedicated to direct incentives, the policy shifts focus to cities such as Mysuru, Mangaluru, Hubballi-Dharwad, Belagavi, Kalaburagi, Shivamogga, Davanagere, and Tumakuru. These “Beyond Bengaluru” locations stand to benefit from significantly lower costs of doing business compared to the state capital. Rents in these areas are currently 30–50% cheaper, with office spaces available for as little as ₹20–₹30 per sq. ft — and the new policy magnifies these savings.

The incentive structure is comprehensive, offering 16 different benefits across five categories: R&D, talent, infrastructure, operations, and market expansion. Nine of these incentives are newly introduced to reduce the financial risks for startups that relocate or expand into Tier-II regions.

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Major Benefits

Key benefits include R&D reimbursement of up to 40% of eligible spend (capped between ₹5 crore and ₹50 crore, depending on project scale), support for patent filings (up to ₹10 lakh), 50% reimbursements on office rent (potentially saving up to ₹2 crore), and 30% property tax rebate for three years.

The policy also waives electricity duty entirely for five years — potentially saving companies ₹5-20 lakh annually and offers generous talent and employment support. Startups relocating talent can get up to ₹50,000 per employee, while EPF reimbursement is available at ₹3,000 per employee per month for up to two years. In addition, there is 25% reimbursement for internet and telecom costs, available for five years.

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To illustrate the potential impact: a founder with about ₹2 crore in personal savings, looking to build an AI startup outside Bengaluru, could reduce first-year burn by as much as ₹70 lakh — combining savings from rent, R&D reimbursements, EPF support, and waived utilities. On top of that, lower living costs in Tier-II cities (typically 25–40% cheaper) could translate into an additional ₹5–10 lakh in annual personal savings.

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If Karnataka succeeds in its target to triple software exports by 2030, early entrants into these regions may also reap significant equity gains by the third year of their venture.

Early Investment

If interested, entrepreneurs should apply early, as some incentives are capped at 100 applicants per category and operate on a first-come basis. They also recommend verifying eligibility — including minimum investment criteria and formal registration under the Karnataka IT Promotion Policy — and consulting a tax adviser to understand the audit and compliance implications before committing.