Pay 70 Percent Less Tax On Mercedes-Benz, BMW Cars In India Soon - Here's How

Buying an imported dream car could become a more realistic idea soon for lakhs of Indian car buyers. The government is reportedly considering slashing the 110 percent import duty on European cars, down

to 40 percent soon. According to a Reuters report, India and the European Union are close to finalising a free trade pact that will cut down the hefty tariffs imposed on imported luxury cars from brands such as Mercedes-Benz and BMW in the country. Here's what we know so far.

Expected to be formalised on January 27, the free trade pact could immediately reduce import taxes on European cars costing over 15,000 euros or Rs 16.30 lakh. This means cars from brands such as Volkswagen, Mercedes-Benz and BMW that are not made in India would become more accessible and see a big boost in sales. However, the government is reported to cap the reduced tax on a limited number of cars, which is 2 lakh imports. For perspective, a BMW M2 sports car that currently costs Rs 1 crore ex-showroom could soon cost approximately Rs 70-75 lakh after the reduced import tax rate comes into effect.

Buyers of luxury electric vehicles would, however, need to wait to benefit from reduced import taxes, as the tariff cuts apply only to internal combustion engine (ICE) vehicles. Electric vehicles from the EU will be exempted from the tariff cuts for the first five years to protect the interests and investments of domestic EV makers such as Tata Motors and Mahindra & Mahindra. After five years, the EVs will also benefit from the same duty cuts.

Currently, brands such as Volkswagen, Mercedes-Benz, BMW, Renault and Stellantis-owned Citroen offer a limited portfolio of cars due to high import taxes. European carmakers currently hold less than 4 percent market share in India, which is currently the world's third-largest car market, with 4.4 million cars sold on average each year. The Indian market is currently dominated by Japanese carmakers such as Suzuki Motor, South Korean majors like Hyundai, Kia and domestic brands such as Tata Motors and Mahindra.

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The reduced import tariffs will allow the European car brands to offer a broader selection of cars and test the market on a larger scale. Perhaps, the biggest news for car enthusiasts is that the taxes on imported cars could further drop to just 10 percent if all goes well.