India plans to sharply cut import duties on EU-made cars from as high as 110% to 40% as part of a proposed free trade agreement.
The move is expected to make European cars cheaper in India while boosting market access for brands like Volkswagen, Mercedes-Benz and BMW.
With India’s car market projected to grow strongly by 2030, the tariff cuts could encourage fresh investments by European automakers.
India is planning a major cut in import duties on cars brought in from the European Union (EU), a move that could significantly lower prices of European vehicles in the country. The Centre has agreed to slash tariffs to 40% from the current levels that go as high as 110%, as both sides move closer to sealing a long-pending free trade agreement, according to a Reuters report.
As part of the initial step, the government will immediately reduce import taxes on a limited number of cars priced above €15,000 from the 27-nation bloc. Over time, these duties could be further reduced to as low as 10%, making it easier for European automakers such as Volkswagen, Mercedes-Benz and BMW to sell cars in the Indian market, the report added.
1 January 2026
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India and the EU are expected to announce the conclusion of negotiations for the trade pact as early as Tuesday. The agreement, reportedly described as “the mother of all deals”, will still need final detailing and ratification. Once implemented, it could boost bilateral trade and lift Indian exports like textiles and jewellery, which have been under pressure due to steep US tariffs.
India currently has one of the world’s most protected automobile markets, despite being the third-largest car market globally after the US and China. Import duties on fully built cars range between 70% and 110%. Under the proposal, India is considering cutting duties to 40% for up to 200,000 petrol and diesel cars annually, though this quota could still change, according to the Reuters report.
Electric vehicles will not be included in the duty cuts for the first five years, as the government reportedly seeks to protect investments made by domestic players like Tata Motors and Mahindra & Mahindra. However, after this period, EVs may also see similar reductions.
Lower tariffs are expected to benefit European carmakers, including Renault and Stellantis, and luxury brands that already manufacture locally but rely on imports to expand their offerings. Reduced taxes would allow companies to test demand with a wider range of models before committing to larger investments, the report further said.
Notably, European brands currently hold less than 4% of India’s 4.4-million-unit car market, which is dominated by Maruti Suzuki, Tata Motors and Mahindra. With the market projected to grow to 6 million units by 2030, automakers such as Renault and Volkswagen are reportedly already planning fresh investments in India.
