India and the United Kingdom have officially signed a landmark Free Trade Agreement (FTA), promising significant duty reductions on cars imported from the UK into India, with cuts of over 90% phased in over five years for certain segments.
A New Era for India-UK Trade
The highly anticipated Free Trade Agreement between India and the United Kingdom was formally signed today. This pivotal agreement, announced about a month and a half ago, marks a significant step in bilateral trade relations.
The signing ceremony saw the presence of key dignitaries, including Indian Prime Minister Narendra Modi, his British counterpart Keir Starmer, and India’s Commerce Minister Piyush Goyal, underscoring the strategic importance of this deal for both nations.
How Car Buyers Stand to Benefit
A major highlight of this FTA is the substantial reduction in tariffs for high-end cars imported from the UK. This move is expected to make many luxury and premium vehicles more affordable for Indian consumers.
Previously, tariffs on these imported vehicles could go as high as 110 percent. Under the new agreement, this duty will progressively drop to just 10 percent over a five-year period. This phased reduction aims to gradually open up the market.
ICE Vehicle Import Quotas and Duties
For Internal Combustion Engine (ICE) vehicles, the FTA introduces a defined quota system. The number of ICE models allowed in at the progressively reduced tariff rate will increase from 20,000 to 37,000 units within the first five years.
However, this quota will later reduce to 15,000 units over the subsequent ten years. This structured approach helps manage the influx of imported vehicles while supporting domestic manufacturing goals.
Even for imports outside the quota, duties will see significant cuts over a decade. Large capacity petrol and diesel cars will see duties drop from 110 percent to 50 percent. Medium capacity ICE cars will go from 66 percent to 50 percent, and small capacity cars from 66 percent to 45 percent.
EV and Hybrid Vehicle Import Duties
The agreement also addresses electric and hybrid vehicles, though with a different timeline. During the initial five years, there will be no reduction on the current 110 percent import duty for these alternative fuel vehicles.
From the sixth year onwards, a quota of up to 4,400 EVs and hybrid cars will be permitted at a reduced rate of 40-50 percent, depending on the model’s total cost. By the end of the 15th year, this import quota will expand to 22,000 units, with the duty further decreasing to just 10 percent.
It’s important to note that EVs and hybrid cars costing below GBP 40,000 CIF (approximately Rs 46.69 lakh) will not see any decrease in import duty under this agreement, focusing the benefits on the higher-end segments.
Benefits for Indian Car Exports to UK
The FTA is not just a one-way street; it also creates opportunities for Indian-made vehicles. From the sixth year of the agreement, 17,600 made-in-India EVs, hybrids, and hydrogen-powered cars, such as the Suzuki e Vitara, will be allowed into the UK without any duty.
This export quota will further increase to 88,000 units by the 15th year. This presents a significant boost for India’s growing automotive manufacturing sector and its push towards sustainable mobility solutions.
Which Carmakers Will Benefit?
Several prominent car manufacturers with production facilities in the UK and a strong presence in the Indian market are set to gain from these duty reductions. Brands like Aston Martin, Bentley, Jaguar Land Rover (JLR), and Rolls-Royce, which import select models into India, are expected to see a positive impact on their pricing strategies.
Mini India, which imports its Cooper models from the UK, had already proactively launched a price protection program. This program was designed to pass on the benefits of any eventual price reduction due to the FTA to its customers, demonstrating a forward-looking approach to the trade deal.
- High-end car import duties from UK to India will drop from up to 110% to 10% over 5 years.
- Quotas apply: ICE car import quotas increase initially, then decrease over 10-15 years.
- EV and hybrid duties remain high for first 5 years, then significantly reduce to 10% by year 15 with increased quotas.
- No duty reduction for EVs/hybrids below ~Rs 46.69 lakh.
- Indian-made EVs/hybrids will get duty-free access to the UK from year 6.
This landmark agreement is poised to reshape the luxury car market in India, offering more competitive pricing for high-end vehicles, while also opening new export avenues for India’s emerging EV sector.
