By Micah Jonah
January 25, 2026
India is set to significantly reduce import tariffs on cars from the European Union to 40 percent from as high as 110 percent, in what is expected to be one of the biggest outcomes of the ongoing free trade negotiations between both parties.
Sources familiar with the talks say the tariff reduction will initially apply to a limited number of vehicles imported from EU countries with a value above 15,000 euros, as India moves to open up its highly protected automobile market to European manufacturers.
The agreement, which is expected to be formally announced on Tuesday, will see the import duty further reduced to as low as 10 percent over time, providing increased market access for European auto brands such as Volkswagen, Mercedes Benz and BMW.
India and the European Union are concluding what officials have described as a landmark trade agreement that is expected to boost bilateral trade and expand Indian exports of goods such as textiles and jewellery, which have faced challenges in other major markets.
India is currently the world’s third largest car market after the United States and China, but maintains some of the highest import duties globally in order to protect domestic manufacturers. The current tariff regime ranges between 70 percent and 110 percent for imported vehicles.
Under the new arrangement, India is expected to allow up to 200,000 combustion engine vehicles annually from the EU at the reduced tariff rate, though final quotas may still be adjusted before the official announcement.
Battery electric vehicles will not benefit from tariff cuts in the first five years of the agreement, as the government seeks to protect investments by local manufacturers such as Tata Motors, and Mahindra in the growing electric vehicle sector. After the initial protection period, electric vehicles are also expected to enjoy similar tariff reductions.
European manufacturers currently account for less than four percent of India’s annual car sales of about 4.4 million units, a market dominated by Suzuki as well as domestic brands Tata and Mahindra.
Analysts say the tariff reduction will enable European manufacturers to introduce a wider range of models at more competitive prices, test market demand and gradually expand local production investments in India.
With India’s auto market projected to grow to about six million units annually by 2030, several global manufacturers are already positioning for expansion, with Renault planning a renewed strategy in India and Volkswagen finalizing further investments through its Skoda brand.
