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New Delhi: The Indian government is preparing for a significant reduction in import tariffs on cars coming from Europe. According to a Reuters report this tariff could be reduced from 110% to 40%. This decision is part of the Free Trade Agreement (FTA) between India and the European Union. Announcement likely today The agreement is likely to be announced today Tuesday 27 January 2026 at the India-EU summit. According to sources the Modi government has agreed to immediately reduce taxes on some cars priced above 15000 euros (approximately Rs 16.3 lakh). Volkswagen and Mercedes-Benz could become cheaper Under the FTA India will reduce the duty on approximately 200000 diesel and petrol engine cars annually by up to 40%. Currently foreign cars in India attract import duties ranging from 70% to 110%. This could fall to 10% over time making European companies like Volkswagen Mercedes-Benz and BMW more affordable in the Indian market. However EU manufacturers have a market share of less than 4% in Indias 4.4 million units per year car market. Electric vehicles will be excluded from the duty cut for the first 5 years to protect domestic players like Tata Motors and Mahindra & Mahindra. The cut may be applied to them afterwards. ‘Mother of all deals’ Earlier on January 20 European Commission Chief Ursula von der Leyen said that a historic trade agreement was about to be signed between India and the European Union (EU). This free trade agreement will create a new market for 2 billion people representing approximately 25 per cent of global GDP. Ursula called it the Mother of all deals at the World Economic Forum (WEF) held in Davos. She is on a visit to India from January 25 to 27 and the completion of this agreement may be announced at the India-EU summit on January 27. Ursula had said “I am going to India. There is still some work to be done but we are on the verge of a historic agreement. This deal will give Europe a first-mover advantage in trading with India one of the worlds fastest-growing and most dynamic countries.” Benefits of the agreement This Free Trade Agreement (FTA) will significantly boost trade between the two sides. Trade with the EU stood at $137.41 billion in 2023-24 and is expected to double after this agreement. The agreement will reduce tariffs on goods and services making trade easier. Both sides will also announce a defense agreement and a strategic plan for 2026-2030. India-EU agreement amidst Trump’s tariffs This agreement comes at a time when Trumps new tariff policies and trade restrictions have created disruptions in global supply chains. India and all 27 countries of the European Union have been affected by the US tariff war. Against this backdrop both sides have decided to strengthen their mutual trade. India is seeking new markets for its products by forging this agreement with European countries.