Winning Bizness Desk
Mumbai.India is set to become a more attractive market for high-end European cars after the government announced a major reduction in import duties on vehicles from Europe. The move comes as part of the India-European Union free trade agreement, formally unveiled at the India-EU Summit on January 27.
Import duty reduced from 110% to 10 percent
Under the agreement, import duty on European cars will gradually fall from 110 percent to 10 percent. The government, however, has imposed an annual limit of 2.5 lakh vehicles for this concession. This step is expected to make luxury and special models from companies such as Audi, Mercedes-Benz and BMW more affordable in India.
High-end European car prices likely to decrease
Duty reduction capped at 2.5 lakh vehicles annually
Electric vehicles excluded from duty cut for first five years
Most popular Mercedes-Benz and BMW models in India are already assembled locally using imported parts. These vehicles attract a customs duty of 15–16.5 percent, meaning the free trade agreement will have minimal impact on their pricing. The concession primarily benefits fully imported models, including premium and limited edition variants.
Impact on India’s car market
India is the third-largest car market in the world, after the United States and China, with an annual sales volume of over 44 lakh units. European manufacturers currently hold less than 4 percent of this market, but the lower import duties could encourage them to expand their presence. Previously, high taxes made it difficult for foreign companies to sell expensive vehicles in India.
Current tax structure explained
Cars priced under $40,000 face 70 percent basic customs duty
Cars priced above $40,000 are taxed up to 110 percent
Free trade agreement gradually reduces duties to 10 percent
The agreement is expected to make European cars more accessible to Indian buyers, while also providing a boost to overall trade. Electric vehicles will not benefit from the duty reduction for the first five years, allowing domestic manufacturers such as Tata Motors and Mahindra & Mahindra to remain protected.
Trade between India and Europe reaches 190 billion dollars
Bilateral trade between India and European countries crossed 190 billion dollars in 2024-25. India exported goods worth 75.9 billion dollars and services worth 30 billion dollars to Europe, while European exports to India totaled 60.7 billion dollars in goods and 23 billion dollars in services. Analysts expect trade volumes to double in the coming years due to reduced tariffs.
Strategic and defense cooperation planned
Alongside the trade agreement, both India and the European Union plan to announce a defense cooperation deal and a strategic plan for 2026-2030. The agreement will lower tariffs on goods and services, making trade smoother and providing opportunities for both Indian and European businesses.
