India-UK FTA: How Car Buyers Will Benefit

Published on 25 Jul, 2025, 1:22 PM IST

Updated on 25 Jul, 2025, 2:36 PM IST

Tushaar Singh Gill

3 min read

Major Tariff Reductions

In May, the two governments had declared that, as part of the Free Trade Agreement (FTA), India would lower tariffs on “high-end cars” imported from the United Kingdom from rates as high as 110 per cent to just 10 per cent.

This agreement has now been formally approved, although the reduction will be implemented gradually over a period of five years.

However, a specific quota has also been established for the number of internal combustion engine (ICE) models that may be imported at these progressively reduced rates. The applicable rate will depend on the engine’s capacity and whether the vehicle is powered by petrol or diesel.

As illustrated in the table above, the total quota for ICE imports at the reduced tariff will rise from 20,000 to 37,000 units during the initial five years, but will then decline over the subsequent ten years to a total of just 15,000 units.

Year	Petrol >3L, diesel >2.5L	Quota for petrol >3L, diesel >2.5L	Petrol 1.5L-3L, diesel 1.5L-2.5L	Quota for petrol 1.5L-3L, diesel 1.5L-2.5L	Petrol & diesel <1.5L	Quota for petrol & diesel <1.5L	Total quota
Current	110%	-	66%	-	66%	-	-
1	30%	10,000	50%	5,000	50%	5,000	20,000
2	25%	12,500	40%	6,000	40%	6,000	24,500
3	20%	15,500	30%	7,000	30%	7,000	29,500
4	15%	18,500	20%	8,000	20%	8,000	34,500
5	10%	19,000	10%	9,000	10%	9,000	37,000
6	10%	16,300	10%	8,150	10%	8,150	32,600
7	10%	15,200	10%	7,600	10%	7,600	30,400
8	10%	14,100	10%	7,050	10%	7,050	28,200
9	10%	13,000	10%	6,500	10%	6,500	26,000
10	10%	11,900	10%	5,950	10%	5,950	23,800
11	10%	10,800	10%	5,400	10%	5,400	21,600
12	10%	9,975	10%	4,988	10%	4,988	19,950
13	10%	9,150	10%	4,575	10%	4,575	18,300
14	10%	8,325	10%	4,163	10%	4,163	16,650
15 and onwards	10%	7,500	10%	3,750	10%	3,750	15,000

Import duties on petrol and diesel CBUs.

Although the overall import quota has now been specified, there is still no clarity regarding how these quotas will be allocated or distributed among the various car manufacturers.

Additionally, the FTA will also bring down import duties for vehicles that exceed the quota limit. Over a ten-year period, the import duty for large-capacity petrol and diesel cars will be reduced from 110 per cent to 50 per cent, for medium-capacity ICE vehicles from 66 per cent to 50 per cent, and for small-capacity cars from 66 percent to 45 per cent.

With respect to hybrid and electric vehicles, the FTA stipulates that there will be no reduction in the 110 percent import duty for any of these alternative fuel vehicles during the first five years.

However, from the sixth year onwards, up to 4,400 electric and hybrid cars will be permitted entry at a reduced rate of 40 to 50 per cent, depending on the total cost of the model.

By the fifteenth year, the import quota for these vehicles will increase to 22,000 units, while the duty will be brought down to 10 per cent. It is important to note that there will be no reduction in import duty for electric and hybrid vehicles priced below GBP 40,000 CIF (cost, insurance and freight), which is approximately ₹46.69 lakh.

From the sixth year onwards, the export of 17,600 made-in-India electric vehicles, as well as hybrid and hydrogen-powered cars to the United Kingdom will be exempt from any duty. This quota will be increased to 88,000 units by the fifteenth year.

These provisions suggest that, while the prices of imported premium and luxury vehicles are set to decrease, there will be no benefit for the struggling small-car segment or for budget-friendly alternative fuel vehicles.

Market Implications

Premium brands like Aston Martin, Bentley, McLaren, JLR, Rolls-Royce, and Mini India stand to gain from lower duties, with Mini already pledging price reductions.

However, small car and budget EV segments receive no relief, potentially limiting accessibility.

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