India is expected to significantly lower import tariffs on cars from the European Union under a proposed free trade agreement that could be finalised as early as Tuesday, sources familiar with the negotiations told Reuters. Under the plan, import duties on select EU-made cars could be cut to 40% from the current peak of 110%, marking one of the most substantial trade concessions in India’s automobile sector to date.

According to sources, the government has agreed to immediately reduce duties on a limited number of cars imported from the 27-nation EU, provided their import price exceeds around ₹16.3 lakh. Over time, tariffs on these vehicles are expected to be gradually lowered further, potentially reaching 10% under the phased implementation of the agreement.

The proposed tariff cuts come at a time of heightened global economic and security concerns, including disruptions linked to policies of the Donald Trump administration. The move is seen as a key breakthrough as New Delhi and Brussels work towards concluding their long-running trade negotiations.

A phased reduction in duties would significantly improve access to the Indian market for European automakers such as Volkswagen, Mercedes-Benz and BMW, which have long pushed for lower import barriers. India currently imposes some of the highest import duties on fully built cars globally, a policy designed to shield domestic manufacturers and promote local production.

Neither the Union Ministry of Commerce nor the European Commission has officially commented on the reported development. However, any sharp reduction in auto tariffs is expected to have wide-ranging implications for the domestic automobile industry, bilateral trade ties and future investment flows between India and the EU.

The development coincides with European Commission President Ursula von der Leyen’s four-day visit to India, alongside European Council President António Costa. The leaders are in the country for Republic Day celebrations and high-level trade talks and are scheduled to hold summit-level discussions with Prime Minister Narendra Modi on Tuesday.

India and the European Union are expected to announce the conclusion of the long-awaited free trade agreement, along with a strategic defence partnership and a framework to facilitate greater mobility for Indian professionals.