European cars could become significantly more affordable in India if the proposed India-EU Free Trade Agreement comes into force as currently drafted. The agreement would allow European carmakers to import up to 1 lakh completely built-up passenger vehicles in the first year at concessional import duties.
The quota would gradually increase to 1.6 lakh vehicles by the 10th year, potentially giving brands such as Mercedes-Benz, BMW, Audi and other European manufacturers more room to expand their imported-car portfolios in India.
Import Duty Could Fall Sharply
Currently, completely built-up cars imported into India face some of the world’s highest automobile import duties.
Under the proposed agreement, EU-origin internal combustion engine and non-plug-in hybrid cars priced between €15,000 and €35,000 could see the import duty fall from 110% to 35% in the first year.
For vehicles priced above €35,000, the duty could fall from the current 66% to 30%.
The tariffs would then decline further, with the in-quota duty expected to reach 10% by the fifth year for eligible vehicles.
1 Lakh Cars In The First Year
The tariff-rate quota will initially allow 1 lakh EU-made ICE and hybrid passenger vehicles to enter India at the lower rates.
The quota would increase progressively:
Year 1: 1 lakh vehicles
Year 2: 1.075 lakh vehicles
Year 3: 1.15 lakh vehicles
Year 4: 1.225 lakh vehicles
Year 5: 1.3 lakh vehicles
The quota would eventually rise to 1.6 lakh vehicles from the 10th year.
For comparison, India imported only around 17,191 cars from the EU in 2025, meaning the initial quota is several times larger than the current import volume.
Luxury Cars Could Get A Major Boost
The agreement could have a particularly significant impact on premium and luxury cars.
From the fifth year, 43,000 vehicles priced above €50,000 would be reserved within the tariff-rate quota.
This could provide European luxury brands with more flexibility to bring additional models to India without facing the full existing import tariff.
Lower duties could also give manufacturers more room to adjust prices, although the final retail price will depend on several other factors, including shipping, taxes, exchange rates and the manufacturer’s pricing strategy.
Not Every European Car Will Get The Lower Duty
The proposed arrangement does not mean that every European car will automatically become cheaper.
The concession applies to vehicles manufactured in the European Union and meeting the agreement’s eligibility requirements.
Cars with a CIF value below €15,000 will not receive the preferential tariff under this arrangement.
The quota also limits the number of vehicles that can receive the most favourable rates each year.
Cars imported beyond the quota will also receive tariff reductions over time, but their duties will remain higher than the in-quota rates.
EVs Get Concessions Later
Battery electric vehicles will follow a separate timeline.
Under the proposed framework, concessions for eligible EVs would begin from the fifth year of the agreement. The EV quota would initially cover 20,000 vehicles and could eventually rise to 90,000 units.
The in-quota duty for eligible EVs would fall from the current 110% to 30% in the fifth year and eventually to 10% by the 10th year.
This means the immediate impact of the agreement is expected to be more significant for ICE and hybrid vehicles.
Indian Carmakers Could Also Benefit
The FTA is not a one-way arrangement.
While European manufacturers would receive greater access to the Indian market, Indian automakers would also receive improved access to the European market.
Companies such as Tata Motors, Mahindra & Mahindra and Maruti Suzuki could potentially benefit from increased export opportunities, depending on the products and markets they target.
The agreement therefore creates opportunities as well as greater competition for India’s automobile industry.
When Could The New Rates Start?
The India-EU FTA negotiations were concluded in January 2026, but the agreement has not yet entered into force.
The published text is still subject to legal revision, signature and completion of the respective internal procedures in India and the EU.
If the agreement is signed and implemented as expected, the lower automotive tariffs would then be introduced according to the agreed schedule.
For Indian car buyers, the biggest potential change could be the arrival of more European models at substantially lower import-duty levels. However, the actual reduction in showroom prices will depend on how manufacturers pass on the tariff savings.
Summary
The proposed India-EU FTA could allow European automakers to import up to 1 lakh cars annually into India at lower duties in the first year, rising to 1.6 lakh by the 10th year. Eligible ICE and hybrid cars could see tariffs fall sharply, while EV concessions would begin from the fifth year. The agreement still needs to be signed and formally implemented.
