New Delhi will immediately reduce import duty on luxury cars from 110% to 30% under the India-EU FTA, opening up a tightly controlled market for cars from Mercedes-Benz to BMW and Volkswagen AG’s Audi, an official said.
While India has agreed to reduce import duty on cars priced above €15,000 (~) ₹16.5 lakh) to 10% time, details of how the reduction will be implemented were not disclosed publicly.
According to a senior government official, India has agreed to immediately cut import duties on 100,000 ICE cars annually divided between three price ranges:
- The duty on cars with an import value of €15,000 to €35,000 will be reduced to 35%, with annual imports capped at 34,000 units.
- A 30% duty will be imposed on cars priced from €35,000 to €50,000, with imports limited to 33,000 units per year.
- Another 33,000 cars priced above €50,000 will also be subject to a reduced tariff rate of 30%.
The two highest price categories will see the biggest tariff cuts. The official said on condition of anonymity that the combined limit for all three categories will be raised to 160,000 units over 10 years as the India-EU FTA still requires legal scrutiny.
India-EU FTA: Import duties on cars
On Tuesday (January 27, 2026), India and the European Union finalized a long-delayed free trade agreement that will cut tariffs on most goods and boost trade, at a time when governments around the world are trying to hedge against volatile US policy and manage rising trade tensions.
India is the third largest car market globally in terms of sales after the United States and China. But its domestic auto industry has been one of the world’s most protected, with the government imposing tariffs of between 70% and 110% on imported cars.
Demand for luxury cars in India
At a time when a growing number of Indians are developing a penchant for opulence – from expensive homes to watches and bathroom fittings – luxury cars accounted for less than 1% of the 44 lakh passenger vehicles sold last year.
While officials have said the lower tariffs are unlikely to cut prices immediately, they said the cuts will allow them to bring more vehicles to the market.
Lower import taxes should also boost other European automakers such as Volkswagen, Renault and Stellantis, which have said increased trade would also increase technology transfers and shared supply chains.
India-EU FTA poses no threat to Indian cars
Meanwhile, India will cut import duties on a total of 20,000 European-made electric vehicles by 30% to 35%, but only after five years of the trade agreement coming into force, the official said.
The tariff cut will apply only to EVs priced above €20,000 to protect domestic companies like Tata Motors PV Ltd and Mahindra & Mahindra Ltd.
Similar to ICE cars, duty on EVs will be reduced to 10% over five years and the annual import quota will increase to 90,000 units, the official said.