The India-EU Free Trade Agreement (FTA) could allow European carmakers to import 1 lakh completely built-up (CBU) internal-combustion engine and non-plug-in hybrid cars into India at lower import duties during the first year. However, the agreement still needs to be signed and ratified before it can take effect.
Negotiations concluded in January 2026, and the FTA could come into force from 2027. Meanwhile, the concessional quota will gradually increase to 1.6 lakh vehicles from the 10th year.
Lower Import Duties For European Cars
During the first year, ICE and non-plug-in hybrid cars priced between 15,000 euros and 35,000 euros will attract a 35 percent import duty within the quota. Cars priced between 35,000 euros and 50,000 euros, as well as those above 50,000 euros, will attract a 30 percent duty.
However, cars priced below 15,000 euros will not receive a tariff concession during the first year. Therefore, the biggest impact could come in the premium and luxury segments.
India-EU FTA Car Import Quota
The initial 1 lakh-unit quota will split across three price categories. Cars priced between 15,000 euros and 35,000 euros will receive 34,000 slots, while the other two categories will receive 33,000 units each.
Furthermore, the quota will increase over time. It will reach 1.075 lakh vehicles in the second year, 1.3 lakh in the fifth year and 1.6 lakh from the 10th year. At that point, the preferential duty across all three categories will fall to 10 percent.
| Period | CBU Import Quota | Preferential Duty |
|---|---|---|
| First year | 1 lakh | 30-35% |
| Second year | 1.075 lakh | 30-35% |
| Fifth year | 1.3 lakh | 30-35% |
| 10th year onwards | 1.6 lakh | 10% |
EVs & Plug-In Hybrids Get Separate Quota
Pure electric and plug-in hybrid cars will not receive concessional access under the initial quota. Instead, preferential access for these vehicles will begin from the fifth year for models priced above 20,000 euros.
A separate quota will start at 20,000 battery-electric and plug-in hybrid CBUs in the fifth year. Additionally, it will rise to 90,000 vehicles by the 14th year. The preferential duty will start at 30 percent in the fifth year before falling to 10 percent from the 10th year.
Import Duties Outside The Quota
Cars imported outside the concessional quota will continue to face significantly higher duties initially. Import tariffs currently range from 66-110 percent, although these rates are scheduled to fall to 30-35 percent by the 10th year.
Therefore, European manufacturers will have a stronger incentive to use the preferential quota for selected models while continuing local production for higher-volume products.
Impact On European Carmakers
The lower tariffs could make CBU imports more viable for European manufacturers such as Volkswagen, Mercedes-Benz and BMW. Moreover, the agreement could help these companies bring more niche, performance and high-end models to India.
Models with relatively low sales volumes often struggle to justify local assembly because of the associated costs. Consequently, lower CBU duties could allow manufacturers to expand their India portfolios without immediately committing to local production.
India-EU FTA & Indian Car Exports
The agreement also provides reciprocal concessions for cars exported from India to the European Union. As a result, the FTA could benefit both markets by reducing trade barriers for automotive products.
However, the final impact will depend on how manufacturers use the quotas and how quickly the agreement moves through the remaining approval procedures.
Prices In India
The FTA does not set retail prices for individual cars. Instead, it reduces the applicable import duty for eligible European CBUs within the specified quotas.
| Category | First-Year Import Duty |
|---|---|
| Cars below 15,000 euros | No concession |
| Cars priced at 15,000-35,000 euros | 35% |
| Cars priced at 35,000-50,000 euros | 30% |
| Cars above 50,000 euros | 30% |
Verdict
The India-EU FTA could significantly change the economics of importing European cars into India. In the first year, 1 lakh ICE and non-plug-in hybrid CBUs will qualify for duties of 30-35 percent, subject to the agreed price bands and quota limits.
Furthermore, the quota will expand over time while preferential duties eventually fall to 10 percent. For buyers, the biggest potential benefit could come through a wider selection of European niche and luxury cars at more competitive prices.
