India plans to cut tariffs on cars imported from the European Union to 40% from as high as 110%, sources told Reuters. This comes as the biggest opening of the country’s vast market as the two sides close in on a free trade pact that could come as early as Tuesday.
The Indian government has agreed to immediately reduce the tax on a limited number of cars from the 27-nation bloc with an import price of more than 15,000 euros ($17,739). The Reuters report also stated that this will be further lowered to 10%, making it easier for European automakers like Volkswagen, Mercedes-Benz and BMW to access the Indian market.
India and the EU are expected to announce the deal on Tuesday, which came after protracted negotiations for the free trade pact. The pact could expand bilateral trade and lift Indian exports of goods such as textiles and jewelry, which have been hit by 50% U.S. tariffs since late August, 2025.
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While India is the world’s third largest market for cars — following the U.S. and China — its domestic industry has been — one of the most protected. New Delhi currently levies tariffs of 70-110% on imported cars, an amount that has been criticized by executives — including Tesla CEO Elon Musk.
New Delhi has proposed slashing import duties to 40% immediately for about 200,000 combustion-engine cars a year, one of the sources said, its most aggressive move yet to open up the sector. This quota could be subject to last-minute changes, according to the reports.
Battery electric vehicles will be excluded from import duty reductions for the first five years to protect investments by domestic players like Mahindra & Mahindra and Tata Motors in the sector. EVs will follow similar cuts, after five years.
This move would mean cars from European carmakers, including BMW, Mercedes-Benz, Audi, Volkswagen, Skoda, Porsche, Lamborghini and Ferrari would be more affordable in the Indian market. With increased localization and CKD operations only high-end models of manufacturers listed above are still imported as CBUs.
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At the lower end models like Skoda Octavia vRS and Volkswagen Golf GTi could see a reduction in prices once the deal comes into effect. Cars like AMG G63, AMG S 63 E Performance and Maybach S-Class from Mercedes-Benz, M series cars, XM SUV and Z4 roadster from BMW, Audi Q8/RS Q8, and the popular Porsche models like 911, Panamera, Macan (ICE) and Cayenne (ICE) are expected become more affordable due to the pact.
Lower import taxes will help European automakers, by allowing them to sell imported vehicles for a cheaper price and test the market with a broader portfolio before committing to manufacturing more cars locally. European carmakers currently hold a less than 4% share of India’s 4.4-million units a year car market, which is dominated by Japan’s Suzuki Motor as well as homegrown carmakers Mahindra and Tata that together hold two-thirds.