India may cut import duty on EU cars to 40% as free trade pact nears, sources say

India is preparing to significantly reduce import duties on cars from the European Union, cutting tariffs to 40% from as high as 110%, according to sources briefed on the negotiations. The move, described as the most aggressive opening yet for India’s tightly protected auto market, is linked to a broader India–EU free trade agreement that has been under discussion for years and may be nearing a breakthrough.

The proposed cut is expected to apply immediately to a limited number of cars imported from the 27-nation bloc, with the eligibility tied to an import price threshold of over €15,000. Sources said the tariff could then be reduced further over time, potentially down to 10%, offering European brands improved access and potentially lowering effective landed costs for select models.

For Europe’s carmakers—such as Volkswagen, Mercedes-Benz and BMW—the change could unlock opportunities in a market where import taxes have long been a barrier. For India, the decision balances competing priorities: trade diplomacy and investment confidence on one side, and domestic manufacturing jobs and industrial policy on the other.

The wider India–EU trade package is being watched closely across industries because it may set templates for market access, rules of origin and regulatory cooperation. Auto tariffs, in particular, have historically been a sensitive negotiating point in India’s trade talks, with local manufacturers arguing that steep duties are needed to protect production ecosystems and supplier networks.

Sources also indicated that electric vehicles may be treated differently in the early years to protect domestic investment in the nascent EV sector. Any final deal, however, will depend on the last-mile details—including quotas, timelines and conditions—before ratification. Still, even a limited opening would mark a clear shift in how India uses tariffs in one of its biggest consumer markets.