Last Updated on January 26, 2026 by Khabr Bite
India is reportedly set to make significant cuts in the European Union (EU) car tariff from the current high of 110% to 40%. These cuts will be part of the long-awaited Free Trade Agreement (FTA) between the two entities, which is likely to be finalized by Tuesday.
It is also referred to as “Mother of all deals,” as it will expand bilateral trade and lift Indian exports, which have been reduced 50% due to US trade tariffs.
India to Reduce EU Car Tariff to 40% Immediately
According to the Reuters report, the Indian government is all set to reduce tariffs on imported EU cars. Currently, the car companies from Europe face a 70-110% tariff that could be reduced to 40% on a limited number of cars.
Another 10% reduction might also happen over time, supporting the European automakers for better trade in the Indian market. Notably, the lower duty will apply to a limited quota. Sources suggest it will apply to nearly 200,000 internal combustion engine (ICE) vehicles per year.
Although Reuters noted that last-minute changes may happen in this deal.
Eligibility Criteria for an EU Car Tariff Cut
Reportedly, India and the EU are on the verge of announcing a Free Trade Agreement (FTA) that includes slashing import duties on European cars. However, not all cars will qualify for the reduced rates.
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Reuters reports that the EU Car tariff cut will apply to only those cars that have an import price (CIF) value of more than €15,000 (approx. ₹16.3 lakh). In simple terms, the cuts will target the premium and luxury segments, not the mass-market local cars.
Additionally, the reduction will only apply to combustion-engine vehicles in the starting period.
Battery Electric Vehicles Excluded from Import Duty Reductions
To protect investment by the domestic players like Mahindra & Mahindra, Tata Motors, and others, the battery electric vehicles will be excluded from cuts for the first five years. After which, EVs will follow similar duty cuts.
What Changes with the EU Car Tariff Cut?
The biggest change will be for the European brands, especially the luxury ones like Volkswagen, BMW, Mercedes-Benz, and others. The cut will help them to price their models more competitively.
For Indian consumers, these cars will become much more accessible due to the price drop. Indian exporters, in the broader context, will gain duty-free access to the EU for Indian textiles and jewelry with the Free Trade Agreement.
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Again, this is not a confirmed deal yet. The official announcement will come during the India-EU Summit, involving Prime Minister Narendra Modi, European Commission President Ursula von der Leyen, and President of the European Council António Costa.
The European leaders are currently on a state visit from January 25-27, at the invitation of Modi. Already, the trade relation between India and the EU is steady, and a better outcome is expected with the FTA.
