India-EU FTA: Will New Delhi slash import duties on cars to 40% in 'mother of all deals'? Here's what we know
Government plans to lower import taxes on up to 200,000 vehicles annually, excluding electric cars for five years.
- Jan 25, 2026,
- Updated Jan 25, 2026 8:27 PM IST
India, the world's third-largest car market by sales, is set to cut import duties on combustion-engine vehicles from the current 70% and 110% down to 40% for about 200,000 cars annually. This marks New Delhi's most significant step to open its highly protected auto sector. The final quota could still change before implementation.
The government has agreed to immediately reduce the tax on a limited number of cars from the EU with an import price of more than 15,000 euros (₹16,26,420 or $17,743), sources told news agency Reuters. This will be further lowered to 10 per cent over time, easing access to the Indian market for European automakers such as Volkswagen, Renault, Stellantis, Mercedes-Benz, and BMW.
These companies, despite some local manufacturing, have faced limited growth under the current high-tariff regime.
Currently, European manufacturers hold under 4% of India’s 4.4-million-unit annual car market, dominated by Japanese and Indian firms. With the market projected to reach 6 million units by 2030, global automakers are re-evaluating their strategies in anticipation of regulatory changes and expansion.
Some companies are preparing new investment plans to capitalise on expected growth. The government’s approach also encourages foreign automakers to test more models in India before expanding local production.
Negotiations over these tariff adjustments are ongoing, with final details yet to be confirmed. The changes are expected to be included in a forthcoming trade agreement, "after which the two sides will finalise the details and ratify what is being called 'the mother of all deals.'"
This move follows growing international criticism of India's steep import tariffs, with industry leaders like Tesla’s Elon Musk pushing for liberalisation. By reducing import taxes, the government aims to attract a broader range of vehicles and new investment from global manufacturers. However, battery electric vehicles will not benefit from the duty cuts for the first five years, a measure to protect domestic investment by Mahindra & Mahindra and Tata Motors.
After five years, electric vehicles will become eligible for similar import duty reductions. This phased approach is designed to support the local EV sector before opening it to greater foreign competition, reflecting a carefully managed policy shift.
Lower import taxes are likely to allow carmakers to offer more competitively priced imported models and broaden their portfolios before considering further local manufacturing. As one source explained, "they added, easing access to the Indian market for European automakers such as Volkswagen, Mercedes-Benz and BMW."
India, the world's third-largest car market by sales, is set to cut import duties on combustion-engine vehicles from the current 70% and 110% down to 40% for about 200,000 cars annually. This marks New Delhi's most significant step to open its highly protected auto sector. The final quota could still change before implementation.
The government has agreed to immediately reduce the tax on a limited number of cars from the EU with an import price of more than 15,000 euros (₹16,26,420 or $17,743), sources told news agency Reuters. This will be further lowered to 10 per cent over time, easing access to the Indian market for European automakers such as Volkswagen, Renault, Stellantis, Mercedes-Benz, and BMW.
These companies, despite some local manufacturing, have faced limited growth under the current high-tariff regime.
Currently, European manufacturers hold under 4% of India’s 4.4-million-unit annual car market, dominated by Japanese and Indian firms. With the market projected to reach 6 million units by 2030, global automakers are re-evaluating their strategies in anticipation of regulatory changes and expansion.
Some companies are preparing new investment plans to capitalise on expected growth. The government’s approach also encourages foreign automakers to test more models in India before expanding local production.
Negotiations over these tariff adjustments are ongoing, with final details yet to be confirmed. The changes are expected to be included in a forthcoming trade agreement, "after which the two sides will finalise the details and ratify what is being called 'the mother of all deals.'"
This move follows growing international criticism of India's steep import tariffs, with industry leaders like Tesla’s Elon Musk pushing for liberalisation. By reducing import taxes, the government aims to attract a broader range of vehicles and new investment from global manufacturers. However, battery electric vehicles will not benefit from the duty cuts for the first five years, a measure to protect domestic investment by Mahindra & Mahindra and Tata Motors.
After five years, electric vehicles will become eligible for similar import duty reductions. This phased approach is designed to support the local EV sector before opening it to greater foreign competition, reflecting a carefully managed policy shift.
Lower import taxes are likely to allow carmakers to offer more competitively priced imported models and broaden their portfolios before considering further local manufacturing. As one source explained, "they added, easing access to the Indian market for European automakers such as Volkswagen, Mercedes-Benz and BMW."