India-EU Trade Deal Set to Cut Luxury EV Import Duties to 10-15%

The anticipated free trade agreement (FTA) between India and the European Union is poised to dramatically reduce import tariffs on automobiles, including electric vehicles (EVs), from the 27-member bloc to 10-15 per cent, potentially catalysing a significant increase in European luxury EV sales within India, according to sources familiar with the negotiations, says a report by The Economic Times.

The agreement, likely to be unveiled at the bilateral summit on January 27, is also projected to position India as an appealing manufacturing centre for premium EVs. India presently imposes import duties of approximately 100 per cent on European automobiles with a landed cost exceeding $40,000 (roughly ₹37 lakh), which applies to luxury EVs -- an emerging category in the country comprising vehicles with entry prices around ₹1 crore, according to industry specialists, the report added.

Competitive Pricing for European Luxury EVs

With the India-EU FTA anticipated to reduce import duties substantially, European luxury EV manufacturers will gain the ability to price their offerings more competitively within the Indian marketplace. Budget EVs, a segment controlled by domestic manufacturers, are likely to remain predominantly unaffected as these vehicles are manufactured locally.

Domestic Industry Protections

The FTA is expected to incorporate provisions balancing market access with safeguards for domestic manufacturers such as Tata Motors and Mahindra & Mahindra, according to informed sources. Staged localisation requirements and value-addition standards for EV manufacturers are anticipated to stay in effect, guaranteeing that import growth does not undermine India's long-term manufacturing objectives, they indicated.

India's EV policy requires 25 per cent domestic value addition by the third year of operations and 50 per cent by the fifth year.

Industry Leaders Welcome Agreement

"We believe this (India-EU FTA) will benefit both parties, expand trade and lead to an exchange of technology and innovation," Hardeep Singh Brar, President and CEO, BMW Group India, was quoted as saying in the report. 

"By leveraging each other's strengths, it will boost consumption for luxury vehicles in India and improve supply-chain integration -- critical in the current geopolitical context."

Luxury Segment Shows Stronger Electrification

India's luxury EV segment, currently generating sales of approximately 2,000 units annually, is experiencing stronger electrification momentum than the mass market.

Battery electric vehicles represented 10.7 per cent of the luxury segment's powertrain composition between January and November 2025, compared with 4.5 per cent for mass-market manufacturers, according to data compiled by Jato Dynamics.

Premium Brands Embrace Hybrid, Electric Tech

Whilst internal combustion engines continue to dominate the wider market, luxury brands have relied substantially on hybrids -- spanning mild hybrids to plug-in hybrids -- as a transition to complete electrification.

Models such as BMW's iX and i4, Mercedes-Benz's EQS and EQE saloons, Audi's Q8 e-tron, and Volvo's XC40 Recharge have secured consistent demand amongst affluent Indian purchasers seeking a blend of performance, sustainability and advanced technology.

Porsche's Taycan, despite its premium pricing of approximately ₹1.7 crore, continues to attract interest, highlighting the expanding acceptance of electric drivetrains in the luxury segment.

India as Export Manufacturing Base

The proposed FTA is also expected to establish India as a more attractive manufacturing location.

"More than 90 per cent of what we sell is manufactured in India, hence we don't see any significant price reduction from the FTA," Santosh Iyer, managing director and CEO, Mercedes-Benz India was quoted as saying.