India and the European Union (EU) have signed a free trade agreement (FTA) under which tariffs on imported European cars will gradually reduce from 110 percent to 10 percent for an allocation of 2,50,000 vehicles a year. The pact also states that duties on auto components will be completely abolished after five to 10 years.
- Import duty reduction on CBUs to happen in a phased manner
- Brands like Ferrari, Lamborghini and Porsche expected to become more affordable
- Only ICE vehicles will benefit first; EVs will see tax cuts after five years
India-EU FTA explained
For reference, currently, the import duty is 70 percent on cars priced below USD 40,000 (approximately Rs 36.66 lakh) and 110 percent on cars priced above USD 40,000. Completely knocked down units – cars assembled locally from imported Completely Knocked Down (CKD) kits – face an excise duty of 16.5 percent.
After implementation of the FTA, only cars priced above USD 17,800 (around Rs 16.31 lakh) will be eligible for the reduced tariff rates, and they will be split into three segments in quotas bearing separate tariffs. It is understood that most cars will initially move to a lower 30-35 percent tariff, which will further reduce to 10 percent over five to 10 years.
As per external sources, only ICE-powered vehicles will benefit from the agreement first, while EVs will see similar tariff cuts after five years. EVs have likely been left off the table for the first five years to protect investments by local players.
Which cars are likely to be affected?
While the cut on CBUs will definitely be a boon for the luxury segment, it will only benefit a small section of the market. That’s because most European luxury car brands such as Mercedes-Benz, BMW, Volvo, Jaguar Land Rover and Audi already assemble most of their cars here.
It’s the high-end luxury and performance variants, including Mercedes-Benz’s AMG, Audi RS and BMW M models, which will see a massive cut in taxes. Sports cars from Porsche, Lamborghini and Ferrari will also benefit significantly, but their volumes are minuscule. Do note that this will be subject to the fluctuations in the exchange range; for instance, the rupee depreciated 19 percent against the euro in 2025, and that too will have an effect on final prices.
The India-EU FTA deal has materialised after about 20 years of deliberations. Talks first began in 2007 but were suspended in 2013. In 2022, discussions were revived, with final negotiations taking place in October 2025. The FTA will likely be in force by mid-2028, as completion of legal formalities and ratification from both parties will take time. The final structure of the agreement could still be subject to change.