TL; DR
- Currently, the government levies import duties of up to 110% on high-end fully imported cars (or complete build units).
- However, as part of the new agreement, the tariff could be reduced for a limited number of combustion-powered cars priced above EUR 15,000, from 110% to 40%.
The Indian government and the European Union are close to finalizing a major free trade agreement, under which the government could sharply reduce import duties on a limited set of European cars. This could be a significant step for a market that has historically protected local manufacturing with very high import duties.
Currently, the government levies import duties of up to 110% on high-end fully imported cars (or complete build units). However, as part of the new agreement, the tariff could be reduced for a limited number of combustion-powered cars priced above EUR 15,000, from 110% to 40%. Over time, it could be further reduced to as low as 10%.
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Breaking Down the Numbers: How a Duty Cut Can Save ₹35 Lakh
To understand the impact of the reduction in import duties, let’s consider an example.
- Suppose a car lands in India at an ex-factory price of Rs. 50 lakhs.
- Its price, after a 110% duty, would be Rs. 1.05 crores.
- However, if the import duty is reduced to 40%, the price would drop to Rs. 70 lakhs.
- You see? The reduction in tariffs could result in potential savings of Rs. 35 lakhs.
So, for a car that landed in India with a price of Rs. 50 lakhs, the reduced import duty could reduce the taxed price by around Rs. 35 lakhs. Remember, this is just an example to help you understand the impact of revised import duties on CBU units. However, the final ex-showroom price, which may also include GST, cess, and dealer margins, could differ slightly.
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Which European Car Brands Stand to Benefit the Most?
European automakers that currently sell fully imported units in the country, or have a slimmer production line in India, could benefit the most from this change. Names like Mercedes-Benz, BMW, Audi, Volvo, Volkswagen, and Skoda, basically the luxury vehicle makers, could see a significant boost in local sales after the tariff cuts come into place.
Companies are most likely to revise ex-showroom prices to stimulate demand, expand their imported lineup to test new nameplates in the country, or (and this is possibly the worst outcome) benefit from higher margins.
Why Electric Vehicles Are Excluded From the Duty Reduction (For Now)
What’s interesting is that electric vehicles, even fully imported models, won’t see immediate tariff cuts. This could be in the interest of the Indian EV manufacturers like Tata and Mahindra. The government wants to foster local EV manufacturing, supply chains, and adoption before opening the country’s rapidly growing EV market to global players.
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Short-Term Market Impact
- Imported luxury ICE models become cheaper fast
- European brands test broader lineups
- Used and parallel import markets may react
Long-Term Market Impact
- If sustained, lower tariffs could pressure locally produced cars to improve features/price or speed up localisation of premium models.
- European automakers might decide to set up CKD/CKD assembly or full manufacturing if India becomes an export hub or offers production economics.
- Some local component makers could gain new business if vehicle lines are localised; others may face competition.
If you’re eyeing a premium European ICE car, now is a good time to watch prices closely and haggle; manufacturers may undercut prior pricing.
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