India plans to reduce import duties on cars from the European Union (EU) as part of a free trade agreement (FTA), which is expected to be announced soon, according to a report by Reuters.
The government has agreed to reduce the tax on a limited number of cars from the 27-nation bloc with an import price of more than 15,000 euros ($17,739), two sources briefed on the talks told Reuters.
Which cars may become more affordable in India?
The duties will be lowered from the current peak of up to 110% to 40%. Over time, these duties are expected to decrease further to approximately 10%, making it easier for European manufacturers such as Volkswagen, Mercedes-Benz, and BMW to access the market, the report said.
Meanwhile, BMW Group India President and CEO Hardeep Singh Brar told PTI on Monday that a cut in customs duty on imported cars under the FTA could enable the growth of the luxury car segment in India.
“Given that luxury vehicles form only about 1% of the passenger vehicle market, this would benefit consumers without impacting mass market players, making it a genuine win-win for both India and the EU,” Brar said.
The India-EU trade agreement, under negotiation for years, is expected to be finalised this week. Reports indicate that officials from both sides regard it as a historic deal that could boost bilateral trade and support Indian exports, such as textiles and jewellery, which have faced significant US tariffs since late August.
At present, India levies import duties ranging from 70% to 110% on fully built cars, positioning it as one of the most protected major auto markets across the globe. Although India is now the third-largest car market by volume, following the US and China, foreign automakers have long maintained that these high tariffs limit model options and hinder investment decisions, the report said.
India has proposed a duty cut to 40% for up to 200,000 internal combustion engine vehicles annually under the EU agreement, according to the Reuters report. The exact quota may still be revised.
Are electric vehicles included?
For the first five years, battery-electric vehicles would not be subject to the tariff reduction framework. The government seeks to protect recent investments by domestic manufacturers such as Tata Motors and Mahindra & Mahindra as the local EV ecosystem develops. After five years, EVs will be subjected to a similar duty structure.
European brands make up less than 4% of India’s roughly 4.4 million annual car sales. The market is mainly led by Suzuki Motor, Tata Motors, and Mahindra, who together hold about two-thirds of the total market share.