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ICE vehicles imported from Europe priced above 15,000 euros will see duties reduced to 40 per cent from as high as 110 per cent in the first phase
The auto market is preparing for a decisive change in how it treats imported passenger vehicles with the proposed India–European Union free trade agreement set to redraw long standing boundaries. Expected to be formally announced tomorrow, the deal introduces sweeping changes to import duties that have historically kept European cars priced firmly out of reach for most buyers.
For decades, fully built European cars entering India have faced customs duties that could stretch as high as 110 per cent. Under the new framework, those levies are set to drop significantly. Internal combustion engine vehicles priced above 15,000 euros will see duties reduced to 40 per cent in the first phase – subject to an annual import ceiling of roughly two lakh units. Over time, tariffs are expected to fall further – eventually approaching 10 per cent.
Battery electric vehicles from the EU will not benefit immediately from the tariff cuts. Instead, they will remain excluded for about five years, a buffer to probably protect domestic EV programmes led by Tata Motors and Mahindra & Mahindra. Once that window closes, electric imports are expected to follow the same phased reduction route.
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Price impact is where the effects will be most visible. At present, a European car costing 45,000 euros to 50,000 euros can attract taxes that rival or exceed the vehicle’s base price by the time it reaches Indian showrooms. With duties capped at 40 per cent, the tax load falls dramatically. Even after accounting for GST and dealer margins, ex-showroom prices could drop by as much as 30 to 50 per cent.
Models from BMW, Mercedes-Benz, Audi, Volkswagen and Porsche stand to benefit the most which could effectively reshape the premium and luxury segments. Despite India’s passenger vehicle market crossing 4.4 million units annually, EU brands currently occupy a marginal share. High import barriers have limited risk-taking and slowed expansion.
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The new tariff structure offers a controlled entry point allowing companies to gauge demand through capped imports before committing to deeper localisation or new factories. Negotiations between India and the EU have stretched over several years – repeatedly stalled by disagreements across sectors. The new deal comes amid global trade realignments and rising protectionism elsewhere.
Lower duties for imported vehicles do not erase the advantages of local assembly which continues to enjoy preferential tax treatment. The demand for premium cars will respond first while volume segments remain largely unaffected. If implemented as outlined, it could permanently alter how global brands approach one of the world’s fastest growing car markets.
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