India is poised to significantly slash import tariffs on cars from the European Union, potentially reducing them from as high as 110% to 40% initially, and eventually to 10% for some vehicles, under a proposed free trade agreement (FTA). This move marks a major shift in India's trade policy and the biggest opening of its automobile market in years. The FTA, which has been long-awaited, is expected to be formally announced soon, possibly as early as today, January 27, 2026, during summit talks between Prime Minister Narendra Modi and European Commission President Ursula von der Leyen, and European Council President Antonio Costa.
The proposed tariff cuts are expected to apply to a limited number of fully built cars imported annually from the EU. Initially, the lower duty is likely to apply to cars priced above 15,000 euros (approximately Rs 16.3 lakh). The exact quota is still under discussion and may be revised before the agreement is officially signed. While the initial reduction is to 40%, the agreement could lead to further cuts over the longer term, potentially reaching as low as 10% for specified numbers.
However, electric vehicles (EVs) will be excluded from the reduced duty structure for at least the first five years. This exclusion aims to safeguard investments made by domestic manufacturers in the electric mobility sector. Similar concessions for electric cars are expected to be considered at a later stage.
The tariff reductions are anticipated to make premium models from European brands like Mercedes-Benz, BMW, Volkswagen, Lamborghini, Porsche and Audi more affordable in the Indian market. This could intensify competition, especially in the luxury and premium segments of the Indian auto market. Lower duties mean imported cars could arrive at far more competitive prices than before. European manufacturers may test the Indian market with broader model ranges and Companies may delay local manufacturing decisions until demand is clearer.
India is already the third-largest car market globally, after the US and China. The current high import duties, ranging from 70% to 110% on fully built imported cars, have long protected the domestic industry. The India-EU free trade agreement is expected to significantly expand the overall trajectory of two-way engagement as it will open up new opportunities for cooperation in diverse areas. Following the summit talks, the two sides will announce the conclusion of the negotiations for the FTA, and it may take at least six months to formally sign the deal as it will require legal scrubbing by both sides.
