DGFT Issues Tariff Rate Quota Guidelines for UK Vehicle Imports; Duty Cuts to Be Phased in While Protecting India's Domestic Auto and EV Industries

The Government of India has officially notified the operational guidelines for importing vehicles under the India–United Kingdom Comprehensive Economic and Trade Agreement (CETA), paving the way for concessional customs duty benefits from July 15, 2026. The notification, issued by the Directorate General of Foreign Trade (DGFT), outlines the procedure for allocating Tariff Rate Quotas (TRQs) that will allow eligible importers to bring specified categories of UK-manufactured passenger and commercial vehicles into India at significantly lower import duties.

The framework represents one of the most important components of the India–UK Free Trade Agreement, balancing greater market access for British automobile manufacturers with safeguards for India's domestic automotive industry. While import duties on eligible vehicles will gradually decline from existing levels of around 110% to as low as 10%, the concessions will be available only within predefined annual import quotas.

The move signals a major milestone in India-UK economic cooperation while reaffirming the government's strategy of liberalising trade in a phased and calibrated manner.

India-UK Trade Pact Enters Operational Phase

The implementation of CETA marks a significant development in bilateral trade relations between India and the United Kingdom.

The agreement aims to strengthen cooperation across multiple sectors by:

• Expanding bilateral merchandise trade.

• Promoting investment flows.

• Improving market access.

• Encouraging technology transfer.

• Supporting manufacturing partnerships.

• Enhancing services trade.

The automobile sector has emerged as one of the most closely watched beneficiaries of the agreement due to the substantial tariff reductions offered under the TRQ mechanism.

Tariff Rate Quota System to Govern Imports

Rather than removing import duties completely, India has adopted a Tariff Rate Quota (TRQ) framework.

Under this mechanism:

• A fixed number of vehicles can be imported annually at concessional duty rates.

• Imports exceeding the allocated quota will continue to attract the existing customs duties.

• Quotas will be administered and monitored by the DGFT.

• Import permissions will be issued on the basis of approved applications.

The quota-based model allows India to gradually open its automobile market while minimising disruption to domestic manufacturers.

Import Duties to Decline in Phases

One of the biggest highlights of the agreement is the phased reduction in customs duties.

Currently, imported fully built passenger vehicles attract customs duties that can exceed 100%, depending on engine size and vehicle category.

Under CETA:

• Duty reductions will be introduced gradually.

• Final customs duties for eligible conventional vehicles will eventually decline to 10%.

• The reductions will be linked to annual import quotas.

• Duties beyond quota limits will remain unchanged.

The gradual approach provides domestic manufacturers with sufficient time to adapt to increasing international competition.

Who Can Avail the Concessional Duty?

The DGFT has clearly defined the categories of importers eligible to benefit from the scheme.

Eligible applicants include:

• Original Equipment Manufacturers (OEMs).

• Dealers authorised by UK-based OEMs.

• Official channel partners appointed by UK vehicle manufacturers.

Applicants must also submit a pre-purchase agreement issued by the UK manufacturer specifying the quantity of vehicles proposed for supply during the relevant quota period.

This requirement is intended to ensure transparency and prevent speculative allocation of quotas.

Certificate of Origin Mandatory

To qualify for concessional customs duties, importers must provide an authentic Certificate of Origin issued by authorised UK agencies.

The certificate confirms that the imported vehicle satisfies the origin criteria prescribed under the trade agreement.

Without this documentation, concessional duties under CETA will not be available.

The origin verification mechanism also helps prevent misuse of preferential tariff benefits.

DGFT to Monitor Annual Import Quotas

The Directorate General of Foreign Trade will supervise the allocation and utilisation of quotas throughout each calendar year.

Key operational provisions include:

• Quota period: January 1 to December 31.

• TRQ certificates valid for up to 12 months or until the end of the calendar year.

• No additional certificates issued after quota exhaustion.

• Continuous monitoring of cumulative imports.

The system is designed to ensure equitable allocation while maintaining strict compliance with quota limits.

Government Encourages Consumer Benefit

The DGFT has advised importers to ensure that the advantages of reduced customs duties are ultimately passed on to consumers.

Although this is not a mandatory pricing condition, the government expects importers to reflect lower duty costs in vehicle pricing wherever feasible.

This approach aims to improve consumer access to premium imported vehicles while promoting fair market practices.

Passenger Vehicle Import Quotas

India has agreed to permit imports of approximately 3.78 lakh conventional passenger vehicles from the United Kingdom over the first 15 years of the agreement.

Annual quotas will gradually increase during the implementation period before reaching their long-term ceiling.

The phased allocation is intended to balance trade liberalisation with the interests of domestic automobile manufacturers.

First-Year Import Allocation

During the first year of implementation, concessional imports will be permitted across multiple vehicle categories.

Premium Large-Engine Vehicles

• Petrol engines above 3,000 cc

• Diesel engines above 2,500 cc

Quota: 10,000 vehicles

Customs duty reduced from approximately 110% to 30%.

Mid-Segment Passenger Cars

• Petrol engines between 1,500 cc and 3,000 cc

• Diesel engines up to 2,500 cc

Quota: 5,000 vehicles

Duty reduced from 66% to 50%.

Mass-Market Passenger Cars

• Petrol engine capacity up to 1,500 cc

Quota: 5,000 vehicles

Duty reduced from 66% to 50%.

Overall, around 20,000 passenger vehicles will qualify for concessional imports during the first year.

Strong Protection for India's Electric Vehicle Industry

One of the most strategically important aspects of the agreement is the protection extended to India's domestic electric vehicle (EV) ecosystem.

For the first five years, India has not offered any tariff concessions for:

• Battery electric vehicles.

• Hybrid passenger vehicles.

• Hydrogen-powered passenger vehicles.

The policy reflects the government's commitment to nurturing India's domestic EV industry, where companies such as Tata Motors, Mahindra & Mahindra and Maruti Suzuki continue to make significant investments.

Luxury EV Imports to Open Gradually

Beginning from the sixth year, limited tariff concessions will become available for premium alternative-fuel vehicles.

Vehicles Valued Between GBP 40,000 and GBP 80,000

• Customs duty: 50%

• Annual quota: 400 vehicles

Vehicles Above GBP 80,000

• Customs duty: 40%

• Annual quota: 4,000 vehicles

By restricting concessions to premium segments, the agreement avoids direct competition with India's emerging mass-market EV manufacturers.

Opportunities for British Automakers

The agreement is expected to improve access for several premium UK automobile manufacturers seeking greater presence in the Indian market.

Potential beneficiaries include companies specialising in:

• Luxury sedans.

• Premium SUVs.

• Performance vehicles.

• High-end electric vehicles.

• Commercial transport solutions.

The gradual reduction in duties could make imported British vehicles more price competitive while expanding consumer choices.

Implications for Indian Automobile Manufacturers

Domestic automakers are expected to experience both opportunities and competitive pressures.

Positive implications include:

• Increased technology collaboration.

• Potential joint ventures.

• Improved component exports.

• Higher global integration.

Challenges may include:

• Greater competition in premium vehicle segments.

• Increased pressure on pricing strategies.

• Need for faster innovation.

• Continued localisation efforts.

However, the quota-based structure significantly limits immediate competitive disruption.

Long-Term Impact on Consumers

Consumers are likely to benefit gradually as the agreement progresses.

Potential advantages include:

• Wider range of imported vehicles.

• Greater competition.

• Improved product availability.

• Better technology offerings.

• Potentially more competitive pricing for premium vehicles.

The benefits are expected to become more visible as annual quotas expand over the coming decade.