Luxury Cars Take the Fast Lane: How European Carmakers Stand to Gain from the India-EU FTA

India’s Free Trade Agreement (FTA) with the EU will reduce import duties on luxury cars from 110 percent to as low as 10 percent within a capped annual quota of 250,000 vehicles. The move provides European manufacturers preferential access to India’s premium auto segment while protecting mass-market vehicles and encouraging local assembly under Make in India.

India and the European Union (EU) have concluded the long-awaited Free Trade Agreement (FTA), setting in motion expanded market access across several high-performing sectors. Among these, the automobile sector, particularly the luxury car segment, has emerged as a key focus area. Under the agreed terms, the sector is poised to be one of the biggest beneficiaries, especially for European manufacturers seeking entry into India’s premium vehicle market.

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Current import duty regime and the shift under the FTA

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At present, India levies very high import duties on fully built cars, with rates of 70 percent on cars priced below US$40,000 and an effective duty of 110 percent on cars above that price range. These steep tariffs have made EU-manufactured luxury vehicles prohibitively expensive, therefore constraining their market reach in India.

The India-EU FTA introduces a major change to this framework. India has agreed to gradually reduce car import tariffs from 110 percent currently to 40 percent initially and 10 percent eventually. It is believed that such a concession has not been extended by India to any other trading partner so far. However, this reduction will apply only within a defined quota, capped at up to 250,000 vehicles per year, each priced above €15,000 (INR 1.64 million / US$17,984.7) imported from the EU.

What the new framework means in practice

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Under the FTA, India will reduce import duties on automobiles to 10 percent, but only for vehicles imported within the agreed quota. This concession will primarily apply to vehicles priced above INR 1.64 million (US$17,984.7), a segment where European luxury manufacturers have a strong presence. Imports beyond the quota will continue to face existing high duties, ensuring that market liberalization remains limited and targeted.

Within these quota limits, the lower tariff regime will allow EU carmakers to price their vehicles more competitively in India, improving access for premium and high-end European brands that were previously constrained by prohibitive duties. Overall, the quota-based framework enables a calibrated market opening, balancing increased competition with continued protection for India’s domestic automobile industry.

India’s landmark trade deal with the EU introduces quota-based tariff reductions for premium vehicles—offering European automakers unprecedented access to India’s luxury car market while preserving Make in India protections.

India’s import trends: Luxury automobiles from the EU

Petrol luxury cars

Leading EU car manufacturers are based in Germany, Belgium, and Sweden.

Under HS code 870323, which covers petrol cars with engine capacity exceeding 1500cc (typically categorized as luxury vehicles), Germany was the largest exporter to India in FY 2024–25, with imports valued at US$91.101 million, per India’s Department of Commerce.

Source: Department of Commerce, Ministry of Commerce and Industry, GoI.

Note: *Trade data for FY 2025–26 covers the period from April 2025 to November 2025. The figures are provisional and will be updated once the financial year concludes on March 31, 2026.

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Diesel SUVs and luxury vehicles

For diesel SUVs and luxury vehicles under HS code 870332, Germany, the Czech Republic, and Belgium are India’s leading EU import sources.

Source: Department of Commerce, Ministry of Commerce and Industry, GoI.

Electric luxury vehicles

In the electric vehicle (EV) segment, Germany has been the dominant exporter to India in FY 2024-25.

Source: Department of Commerce, Ministry of Commerce and Industry, GoI.

A closer analysis indicates that India is becoming an increasingly important market for EU automakers in the EV segment, even more so than for conventional fuel-based luxury vehicles.

Major luxury car brands based in EU regions

Here are some of the major automakers based in EU regions:

• • Germany: Mercedes-Benz, BMW, Audi, Porsche, Maybach, Alpina, Volkswagen
  • Sweden: Volvo Cars, Polestar, Koenigsegg
  • Czech Republic: Škoda Auto
  • Belgium: Rolls-Royce, Bavaria Motors, Lexus Europe
  • Italy: Ferrari, Lamborghini, Maserati, Ducati

Selected luxury models and prices in India

Examples of EU luxury vehicles currently sold in India include the Lamborghini Urus, Ferrari 812, Audi RS5, BMW i7 (EV), Porsche Taycan (EV), and Volvo EX40 (EV), with prices ranging from INR 4.9 million to over INR 50 million, depending on the model, powertrain, and import structure.

Source: HT Auto

Protection of the mass-market car segment

Market reports indicate that India has deliberately ring-fenced the sub-INR 1.64 million (US$17,984.7) segment cars, which is the largest and fastest-growing part of its automobile market. Access to this market will require local manufacturing or assembly, reinforcing the central government’s Make in India objectives.

Incentive for local manufacturing and investment

The quota-based design is intended to allow European manufacturers to test demand in India’s luxury segment and encourage local production and assembly once volumes increase. The objective is also to promote employment generation, technology transfer, and supply chain integration in the medium-to-date term.

Treatment of EVs

The India-EU FTA impact on EVs will be limited, as these are excluded from the agreement for five years. After this period, phased duty reductions within limited quotas will apply, with tariff levels varying by segment.

European automobile industry welcomes the India-EU FTA

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The European Automobile Manufacturers’ Association (ACEA) has welcomed the conclusion of negotiations for the FTA between India and the European Union, describing it as a significant milestone in global trade relations.

For the European automobile industry, the agreement opens the door to India’s passenger vehicle market of around 4 million units, which has historically been shielded by extremely high import duties.

While the agreement promises meaningful market access, ACEA has noted that quota limits and residual tariffs will moderate the overall gains for European carmakers. A more comprehensive assessment of the agreement’s impact will follow once the final legal texts are released in the coming weeks.

In an official statement issued on January 27, 2026, ACEA members expressed firm support for the deal and indicated that they will urge EU member states and the European Parliament to grant swift approval, enabling the agreement to be implemented at the earliest.

Overall implications

For consumers, the India-EU FTA promises greater choice and relatively lower prices in the luxury car segment. For India, it ensures domestic industry protection while attracting global investment and advanced manufacturing technologies.

For EU automakers, the agreement delivers preferential, first-of-its-kind access to India’s premium automobile market, reinforcing the FTA’s strategic importance for both sides.

€1 = INR 109.9

US$1 = INR 91.79

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