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The India–UK Comprehensive Economic and Trade Agreement (CETA) will progressively slash the basic customs duty on internal combustion engine (ICE) passenger vehicles to as low as 10% over the next five years, according to a document from the Ministry of Commerce.
The FTA has introduced phased reductions in India’s currently steep basic customs duties, ranging from 66% to 110% based on engine capacity, for ICE passenger cars made in the UK.
For petrol cars with engine capacities above 3000cc and diesel cars above 2500cc, the duty will drop from 110% to 10%. Similarly, for petrol cars up to 3000cc and diesel cars up to 2500cc, the duty will be reduced from 66% to 10%.
India will initially offer reduced duties on up to 20,000 cars in the first year of the FTA, gradually tapering to 15,000 units annually from 15th year onwards. The in-quota duty for these vehicles will progressively decrease each year, aiming to reach 10% by the 5th year, across three distinct engine categories.
In the initial year of the FTA, the 110% duty on petrol cars with engines exceeding 3000cc and diesel vehicles exceeding 2500cc will be cut to 30%, limited to a quota of 10,000 cars. For mid-range vehicles – specifically petrol cars from 1500cc up to 3000cc and diesel cars up to 2500cc – the duty will be reduced from 66% to 50%, with a quota of 5,000 units.
Similarly, for smaller cars (up to and including 1500cc), the duty will also drop from 66% to 50% for 5,000 units in the first year.
Vehicle imports exceeding the specified quotas will still face higher tariffs. However, even these duties will be progressively reduced, reaching 50% for high-end categories by the tenth year.
This duty relief opens India’s historically protected automobile market, allowing UK automakers to introduce more models at competitive prices, particularly within the premium and luxury segments. This move is expected to especially benefit high-end British carmakers like Jaguar Land Rover, Bentley, Aston Martin, and Rolls-Royce.
However, the FTA explicitly excluded battery, hybrid and hydrogen-powered passenger cars priced under £40,000 (approximately Rs 44 lakh) from any import duty cuts, a move aimed at shielding the domestic manufacturers. The basic customs duty on these cars will remain 70%.
For the initial six years of the FTA, no import duty concessions will be granted for any alternative fuel vehicles, regardless of their price, even those exceeding £40,000. However, from the sixth year onward, vehicles priced above £40,000 will begin to see gradual duty reductions, subject to specific import volume thresholds. Currently, vehicles in this price segment face a basic customs duty of 110%.
While this duty concession opens doors for greater choice and increased competition, especially from UK-based carmakers, it also prompts existing global brands to rethink their localisation and investment strategies, including potential manufacturing footprints in the UK, said Saurabh Agarwal, Partner and Automotive Tax Leader, EY India.
Raghunandhan NL, director at Nuvama Institutional Equities, said is duty cut on imports is unlikely to have any negative impact on Indian OEMs and ancillaries, in PVs and CVs, as the reduction in tariffs is over a period of time, and the quotas are small.
Finalized after 14 rounds of negotiations, the FTA eliminates steep tariffs on a wide range of goods and services, significantly deepening the economic engagement between India and the UK. The deal is projected to substantially boost annual bilateral trade by an impressive £25.5 billion.
“We welcome this free trade agreement between the UK and India, which over time will deliver reduced tariff access to the Indian car market for JLR’s luxury vehicles,” a Jaguar Land Rover spokesperson said.
Carmakers including Jaguar Land Rover, Nissan, BMW Group, Toyota, Rolls-Royce, Aston Martin, Bentley, Lotus and McLaren have manufacturing operations in the UK.
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