Luxury car fans in India have reason to celebrate. Well-known European brands such as Mercedes-Benz, BMW, and Volkswagen may soon become more affordable, as the Indian government plans to lower import taxes on cars from Europe.
According to reports, India is planning to cut import tariffs on European cars from the current 110% to around 40%. Over time, these duties could even drop further, possibly reaching as low as 10%.
This big change is part of a new Free Trade Agreement (FTA) between India and the European Union (EU), which is expected to be announced at the India-EU summit on January 27, 2026.
Immediate Tax Reduction on Premium Cars
Sources say the Modi government has agreed to quickly lower taxes on cars costing more than 15,000 euros, or about ₹16.3 lakh.
With this agreement, India will let about 200,000 petrol and diesel cars be imported each year at lower tax rates. This should make many luxury European cars much more affordable for Indian buyers.
Right now, imported cars are subject to taxes of 70% to 110%, which makes luxury vehicles very expensive in India. The planned tax cuts could lead to much lower prices.
Electric Cars to Be Excluded Initially
To protect Indian car makers like Tata Motors and Mahindra & Mahindra, electric vehicles will not get lower taxes for the first five years.
After five years, the government might also lower taxes on electric cars.
What Is the ‘Mother of All Deals’?
Ursula von der Leyen, President of the European Commission, has called the India-EU Free Trade Agreement the “Mother of all deals”.
At the World Economic Forum in Davos earlier this month, she said the agreement would create a market of almost 2 billion people, accounting for about 25% of the world’s total GDP.
She also said Europe is close to finalising the deal, which would give European businesses a significant advantage when trading with one of the world’s fastest-growing economies.
Big Boost Expected for Trade
The agreement is expected to boost trade between India and the EU.
In 2023-24, trade between India and the EU was $137.41 billion. Officials think this number could double once the FTA starts.
The deal will lower taxes on many goods and services, making business easier and cheaper for companies in both regions. India and the EU are also expected to announce a defence cooperation agreement and a strategic plan for 2026 to 2030.
Strategic Move Amid Global Trade Tensions
The timing of this agreement matters because recent US tariff policies and trade restrictions have disrupted global supply chains.
Both India and European countries have felt the impact of these changes. By strengthening trade ties, they aim to reduce dependence on volatile global markets and create more stable economic partnerships.
What This Means for Indian Consumers
If the tariff cuts happen as planned:
- Luxury European cars could cost much less.
- More international car brands may come to India
- Buyers may have more options at lower prices.
Right now, European car makers have less than 4% of India’s annual car market of 4.4 million vehicles, but the new deal could help them grow significantly.