Historic India-EU Trade Deal: Luxury Cars to Get Massive Price Cut as Tariffs Drop from 110% to 10%!

Cars imported from Europe will now become cheaper in India. The Indian government has reduced the import duty on cars coming from Europe from 110% to 10%. However, the government has set an annual limit of 250,000 vehicles for this reduction.

This decision is part of the Free Trade Agreement between India and the European Union. The agreement was announced today (January 27) at the India-EU Summit. After nearly 20 years of negotiations, both sides have finalized this agreement. It will be implemented by 2027.

Most popular Mercedes-Benz and BMW cars in India are already manufactured through local assembly, meaning parts are imported and assembled here. These currently attract an import duty of only 15-16.5%, so the FTA with the EU will not significantly impact their prices.

Audi, BMW, and Mercedes will become cheaper

According to a statement issued by India and the European Union, the tariff on cars will be gradually reduced from 110% to 10%. This will make high-end or special models from European companies like Audi, Mercedes-Benz, and BMW cheaper in the Indian market.

However, this concession will not be unlimited. The government has implemented a quota system, under which this reduction will apply to only 250,000 vehicles annually. Electric vehicles will be excluded from the duty cut for the first five years to protect domestic players like Tata Motors and Mahindra & Mahindra. After that, the reduction may apply to them as well.

What is the current tax rate?

If the car's price is less than $40,000, a 70% basic customs duty is levied.
If the car's price is more than $40,000, the customs duty reaches 110%.

India is the world's third-largest car market

In terms of sales, India is currently the world's third-largest car market after the US and China. Although EU manufacturers have a market share of less than 4% in India's annual car sales market of 4.4 million units,

India had kept its auto sector quite protected. High taxes made it difficult for foreign companies to sell their expensive cars in the Indian market. Now, after this deal, it will be easier for companies like Mercedes, BMW, Audi, and Volkswagen to expand their presence in India.

Mutual trade has crossed $190 billion

In 2024-25, total trade exceeded $190 billion (approximately ₹15.80 lakh crore). During this period, India exported goods worth $75.9 billion and services worth $30 billion to European countries. Meanwhile, Europe exported goods worth $60.7 billion and services worth $23 billion to India.

This is expected to double after the agreement. The agreement will reduce tariffs on goods and services, making trade easier. Both sides will also announce a defense agreement and a strategic plan for 2026-2030.