UK luxury cars set to get cheaper in India under landmark trade pact

In a game-changing move for the Indian auto market, the India-UK Free Trade Agreement (FTA) will significantly lower tariffs on British-made luxury and zero-emission vehicles, making high-end imports more affordable and potentially reshaping the premium car landscape.

Currently, India imposes steep import duties ranging from 70% to 110% on passenger vehicles and 40% on trucks. But under the new Comprehensive Economic and Trade Agreement (CETA), these duties will see a phased reduction through tariff-rate quotas (TRQs), capping import volumes while offering sharply lower rates.

Here’s what changes under the FTA:

• Internal Combustion Engine (ICE) Cars:
  The agreement will cut tariffs on ICE cars to 30–50% in the first year for up to 20,000 units. By the 15th year, this drops to just 10%, though the quota tightens to 15,000 cars. Out-of-quota imports will also see reductions, with duties dropping to 60–95% initially and to 45–50% over a decade.
• Luxury Vehicle Categories:
  For vehicles up to 2500 cc (diesel) or 3000 cc (petrol), duties will fall by 16–56% over five years. Larger ICE vehicles will benefit from even steeper reductions, up to 100% over the same period.
• Electric, Hybrid & Hydrogen Vehicles:
  Fully zero-emission vehicles priced under £40,000 (CIF) will now attract zero import duty. Those priced between £40,000 and £80,000 will be taxed at 50% initially, falling to 10% by year 15, with a quota of 2,000 units. Premium zero-emission cars over £80,000 start at 40% duty within a 4,000-unit quota, eventually dropping to 10% for up to 20,000 vehicles.

Importantly, there will be no duty reductions on out-of-quota EVs, a move aimed at shielding domestic manufacturers of green vehicles.

Trucks and commercial vehicles also gain under the agreement, with ICE truck duties reduced to 37% in the first year (within a 2,500-unit quota), falling to 8.8% by the tenth year. However, electric and hydrogen-based trucks do not benefit from the duty cuts.

According to Saurabh Agarwal, Automotive Tax Leader at EY India, the 10% import duty rate for UK-made cars marks “one of the most significant outcomes of the FTA” and could drive global manufacturers to set up factories in the UK to tap into India’s lucrative market.

However, access to reduced tariffs is contingent on a minimum 35% UK-origin content under the Qualifying Value Content (QVC) rule — a strategic filter that maintains the spirit of bilateral manufacturing partnerships.

While the deal opens India’s doors wider to global carmakers, it’s also a calculated move — using quotas and origin rules to strike a balance between consumer access and domestic industry protection.

Notably, India’s car imports from the UK dropped 46% to $72 million in FY25 from $134 million the previous year — a trend that could reverse dramatically as the new tariff regime takes hold.