India has opened up its market for European OEMs by gradually reducing the import duty on motor vehicles to 10% from 110% on 250,000 vehicles per year.
27 Jan 2026 | 634 Views | By Kiran Murali
India and the European Union concluded free trade agreement talks on Tuesday, marking the largest and most ambitious trade deal signed by either side. This FTA will see a gradual reduction in import duty on motor vehicles from the EU to India to 10% from the current 110% over a ...
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India and the European Union concluded free trade agreement talks on Tuesday, marking the largest and most ambitious trade deal signed by either side. This FTA will see a gradual reduction in import duty on motor vehicles from the EU to India to 10% from the current 110% over a period of time, subject to a quota of 250,000 vehicles a year.
Tariffs on motor vehicles will be gradually reduced from 110% to as low as 10%, while duties on car parts will be phased out over five to ten years, according to the FTA documents. At present, India levies a 70% duty on imported cars priced below $40,000, and those priced above $40,000 are taxed at 110%.
“On automobiles, a calibrated and carefully crafted quota-based auto liberalisation package will not only allow EU auto makers to introduce their models in India in higher price bands but also open the possibilities for Make in India and exports from India in the future,” India’s Ministry of Commerce & Industry said.
“Indian consumers to benefit from high-tech products and greater competition. The reciprocal market access in EU market will also open up opportunities for India-made automobiles to access EU market.”
More details on the phased tariff cuts, including the vehicles and powertrains they will apply to, are expected once the government releases further information on the agreement. Motor vehicle imports to India from the EU were valued at €1.6 billion in 2024, while component exports were at US$5.77 billion. Current duty on component imports to India is in the range of 7.5-15%, while component exports to the EU attract 0-8% duty.
Lower tariffs on imported cars to India will open a big opportunity for European automakers such as Volkswagen, Mercedes-Benz and BMW, looking to export CBUs from Europe. However, companies such as Volkswagen, Mercedes-Benz and BMW already assemble imported kits (CKD) and sell in India at a much lower tariff of around 16%.
Santosh Iyer, managing Director and CEO of Mercedes-Benz India, earlier told Autocar Professional that 95% of Mercedes-Benz cars sold in India are locally produced and attract duties of only 15–16%, which means the FTA’s reduced tariffs of 10–15% on imported vehicles, will have minimal impact on pricing.
With this FTA, India will eliminate or reduce tariffs on 96.6% of EU goods exported to India, a move expected to double EU goods exports to India by 2032.
The Automotive Component Manufacturers Association of India (ACMA) noted that the EU is India’s largest trading partner for goods and a key market for the Indian auto-components sector, accounting for nearly 30 percent of India’s component exports.
“The signing of the India–EU FTA is a timely and strategic step. For the auto-components industry, it has the potential to unlock new opportunities for exports, technology partnerships, and investment-led growth,” said ACMA President Vikrampati Singhania.
“As global OEMs and suppliers look to build resilient supply chains, a well-balanced and pragmatic FTA can position India as a reliable manufacturing and sourcing partner for Europe, while strengthening our long-standing industrial partnership.”
The FTA with the EU follows the India–UK Comprehensive Economic and Trade Agreement (CETA), signed in 2025. Under CETA, the base rate of customs duty on ICE passenger vehicles will be progressively reduced to as low as 10% within five years.