Post the transaction, Tata Motors will own 40 per cent stake in Telcon, while Hitachi will have 60 per cent, the company said.
Standard Chartered and ABZ partners acted as financial and legal advisers for the deal, it added.
Telcon is one of the leading providers of mining, infrastructure, construction and agricultural equipment and services.
It was set up in 1999 as a wholly-owned subsidiary of Tata Motors and later in 2000, Hitachi was roped in as a joint venture partner by offloading 20 per cent stake, which was subsequently increased by another 20 per cent.
The stake sale by Tata Motors in Telcon is part of its strategy to sell stakes in its group companies to raise funds to repay debt.
Last month, Tata Motors vice-chairman Ravi Kant had stated that the company was 'looking at various options for offloading the stake' amid reports of State Bank of India eyeing up to 30 per cent in Tata Motors Finance.
In fact, SBI chairman O P Bhat has said the country's largest lender was awaiting approval from the Reserve Bank of India to execute the deal.
Tata Motors chief financial officer C Ramakrishnan had also said the company was looking at reducing debts of about Rs 20,000 crore (Rs 200 billion) and was considering various fund-raising options.
The company had accumulated the debt mainly on account of its acquisition of the British marques Jaguar Land Rover for $2.3 billion in 2008.