Startup costs feeling heavy? Karnataka's IT policy could lighten the load

Lower rents, chunky reimbursements and talent perks could slash year-one burn

Karnataka’s freshly cleared IT Policy 2025-2030, announced at the Bengaluru Tech Summit on Wednesday, offers a rare financial opportunity for founders willing to build outside the state capital.

 

With an overall outlay of Rs 967 crore, including Rs 754 crore in direct incentives, the policy shifts its focus to “Beyond Bengaluru” locations such as Mysuru, Mangaluru, Hubballi-Dharwad, Belagavi, Kalaburagi, Shivamogga, Davanagere and Tumakuru.

 

For early-stage entrepreneurs, the appeal is straightforward, lower setup costs, multiple reimbursements and the chance to stretch personal savings much further. Rents in these Tier-II cities are already 30–50 per cent cheaper than Bengaluru, and office space can cost as little as Rs 20–30 per sq ft. The new incentives amplify this advantage.

 

The incentives 

 

The policy offers 16 incentives across five categories– R&D, talent, infrastructure, operations and market expansion. Nine of these incentives are brand new and designed to ease the financial risks of moving or expanding into Tier-II cities.

 

Major benefits include:

 

·  R&D reimbursement: Up to 40 per cent of eligible spends, capped between Rs 5 crore and Rs 50 crore depending on project scale. This includes prototyping, testing and even Rs 10 lakh support for patent filings.

 

·  Rental assistance: 50 per cent reimbursement on office rent, with potential savings of up to Rs 2 crore.

 

·  Property tax rebate: 30 per cent reimbursement for three years, cutting fixed costs significantly.

 

·  Electricity duty waiver: Complete exemption for five years, reducing utility outgo by roughly Rs 5–20 lakh annually.

 

·  Talent relocation support: Up to Rs 50,000 per employee for moving costs, helpful for attracting skilled workers at lower Tier-II salary levels.

 

·  EPF reimbursement: Rs 3,000 per employee per month for up to 24 months, easing HR budgets for new hires.

 

·  Internet and telecom reimbursement: 25 per cent support for five years, useful for lean teams or hybrid work setups.

 

A return-on-investment scenario

 

A founder with around Rs 2 crore in personal savings looking to launch an AI startup could see first-year costs drop dramatically outside Bengaluru. With combined savings from rent, R&D reimbursements, EPF support and utility waivers, total benefits may reach Rs 70 lakh in the first year. Lower living costs in Tier-II cities, typically 25–40 per cent cheaper, can add Rs 5–10 lakh in personal annual savings.

 

If growth targets from the state materialise, including a push towards tripling software exports by 2030, early entrants could see meaningful equity gains by year three.

 

If you want to invest

 

·  Apply early: Some incentives are capped at 100 applicants per category and work on a first-come basis.

 

·  Check eligibility: Minimum investment requirements and registration under the Karnataka IT Promotion Policy apply.

 

·  Plan your finances: Consult a tax adviser to understand audit and compliance conditions before committing.