From 110 to 30: India EU Trade Deal to Lower Import Tariffs on Luxury Cars

India will reduce import duties on high end European Union passenger vehicles to 30 percent from the current 70 to 110 percent range under a trade agreement finalised with the European Union in 2026, officials said. The agreement provides for further tariff reductions over time, with duties on certain segments potentially falling to 10 percent.

The decision marks one of the largest tariff reductions India has implemented in the passenger vehicle sector and is expected to improve access for European luxury automakers such as BMW and Mercedes Benz.

How the New Tariff Framework Works

Under the agreement, imported European cars with an import value between 35,000 euros and 50,000 euros will be subject to a 30 percent duty, with annual imports capped at 33,000 units. A further 33,000 vehicles priced above 50,000 euros will also qualify for the same tariff rate. Cars imported from the European Union with a value between 15,000 euros and 35,000 euros will see duties reduced to 35 percent, with an annual cap of 34,000 units. Together, the three price categories allow for imports of up to 100,000 internal combustion engine vehicles per year in the initial phase.

According to officials, the combined annual import quota across these categories will increase to 160,000 units over a ten year period. Tariffs for certain segments are expected to decline further over time, potentially reaching 10 percent.

What the Tariff Cut Means for Automakers

India currently has some of the highest import duties on passenger vehicles globally, which has limited the number of fully built imported models sold in the country. The tariff reductions are expected to make it commercially viable for European automakers to expand their product portfolios in India. Executives from luxury car manufacturers have indicated that the duty cuts may not immediately lead to significant price reductions for consumers.

However, the changes are expected to allow companies to introduce additional models and variants that were previously constrained by high import costs. Other European automakers including Volkswagen, Renault and Stellantis are also expected to benefit from improved market access and increased trade volumes under the agreement.

Electric Vehicles and Import Duties

The agreement also includes provisions for electric vehicles. Import duties on European made electric vehicles priced above 20,000 euros will be reduced to between 30 and 35 percent, beginning five years after the trade deal is implemented. Initially, the reduced EV tariffs will apply to 20,000 vehicles annually. Over time, duties on electric vehicles are expected to fall to 10 percent, with annual import quotas rising to 90,000 units. The delayed implementation is intended to protect domestic electric vehicle manufacturers.

Market Context

India is the world’s third largest passenger vehicle market by volume, after the United States and China. Luxury vehicles account for less than one percent of the approximately 4.4 million passenger vehicles sold annually in the country.

Despite their small share, sales of luxury vehicles have been growing steadily in recent years. The tariff changes under the India European Union trade agreement are expected to support further expansion of the premium segment while maintaining protections for domestic manufacturers.

Luxury vehicles currently account for less than one percent of annual passenger vehicle sales in India; and this mutation forms part of broader measures under the India European Union trade agreement aimed at expanding bilateral trade. The deal still requires legal vetting before full implementation but certain vehicle categories are scheduled to reduce gradually and could potentially fall to 10 percent.

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