While India has focused on exemptions for electric cars, the move could make the state, home to the tech hub of Bengaluru, the second after northern Uttar Pradesh to provide tax breaks to hybrid cars, for which Toyota has lobbied New Delhi.
Karnataka, which racks up India's third-highest sales of electric vehicles (EVs), aims to drop road tax and registration charges for hybrid cars costing less than USD 30,000, versus 13% to 18% now, according to the draft seen by Reuters.
The state aims to boost "clean mobility vehicle adoption," which includes EVs, certain hybrids and hydrogen-based vehicles, it said in the draft, which set no deadline to finalise and unveil the policy.
The state's transport department did not respond to Reuters' requests for comment.
Toyota's push is at odds with rivals such as Tata Motors and Mahindra & Mahindra which want to keep the focus on EVs, saying incentives for hybrids would hurt India's goals for their adoption.
State road and registration taxes are charged on top of federal sales tax of 5% for EVs and up to 43% for hybrids.
Additionally, Karnataka plans to offer incentives of up to 25% on capital investments by makers of electric vehicles or their components, varying according to investment size and the numbers employed, the draft showed.
The draft shows Karnataka is likely to offer financial incentives ranging from 15% to 25% of the investment made by companies in fixed assets, such as land and machinery, for new factories or to expand existing ones.
These will also apply to makers of battery components or EV charging gear, the draft showed.
The state's government has previously said it plans to raise up to USD 6 billion in new investments through a clean mobility policy, but has not made any other details public.
Indian states are trying to outdo each other in investments and tax incentives to lure the EV industry, in line with Prime Minister Narendra Modi's focus on boosting adoption of such cars to reduce pollution and cut the fuel import bill.
India's car sales of 4.2 million in the 2023/24 financial year included fewer than 100,000 units each of hybrids and EVs. By 2030, India aims to boost the share of fully electric vehicles to 30% of new car sales.
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