EU–India Trade Agreement after the Conclusion of Negotiations: Customs Duties and Fiscal Implications in Trade

In January 2026, the European Union and India announced the political conclusion of negotiations on a comprehensive free trade agreement (FTA). This marks the completion of the political negotiation phase, while the agreement remains subject to formal legal procedures and ratification prior to its entry into force.

The agreement covers a broad range of changes in the area of customs duties and regulations affecting import-related settlements and access to preferential tariff treatment, which are of material importance to businesses engaged in EU–India trade. The agreement does not harmonise income taxes (CIT/PIT) or indirect taxes (VAT/GST); its tax implications are indirect and arise primarily from changes in customs charges and the conditions governing market access.

The agreement brings together two major economies and introduces substantial changes to the framework governing bilateral trade.

Significant Reduction of Import Customs Duties in India

One of the key pillars of the agreement is the elimination or substantial reduction of tariff barriers on the Indian side. India has agreed to reduce customs duties on goods representing 96.6% of the total value of European Union exports to the country.

According to estimates presented by the European Commission, the agreement could eliminate up to EUR 4 billion in annual customs duties for EU exporters, potentially resulting in annual savings of up to EUR 4 billion for importers in India and enhancing the competitiveness of European businesses in the Indian market.

Automotive, Food, and Industrial Sectors as Key Beneficiaries

Particularly significant changes are envisaged for the automotive sector. Customs duties on finished vehicles are to be gradually reduced from the current level of 110% to 10% over the long term, within an annual quota reportedly amounting to approximately 250,000 vehicles per year (according to media reports; the final parameters remain subject to confirmation in the tariff annexes). Automotive parts are to be fully exempt from customs duties within a period of five to ten years following the entry into force of the agreement.

In practice, this means that preferential rates will not apply automatically from the moment the agreement enters into force- the decisive factor will be the tariff reduction schedule set out in the relevant tariff annexes.

Significant reductions will also apply to:

• wine, spirits, and beer;
• selected food products, including olive oil, fruit juices, confectionery, pasta, and bakery products, for which the elimination of customs duties is envisaged;
• machinery, chemicals, pharmaceuticals, as well as medical and optical equipment.

At the same time, it has been emphasized that imported food products placed on the European Union market will remain subject to applicable EU food safety standards.

Liberalization of Access to the European Union Market

On the European Union side, the agreement provides for the elimination of customs duties on 99.5% of goods imported from India over a seven-year period. The reduction of duties is to take place in stages, in accordance with the agreed schedule, resulting in the gradual expansion of the range of goods covered by zero-duty treatment.

Zero-duty treatment will apply, inter alia, to textiles and apparel, leather goods and footwear, seafood products, as well as jewelry, chemicals, and iron and steel products. 

The implementation of preferential treatment will be phased over time on both sides.

On the EU side, liberalisation is to be implemented in stages over a period of up to seven years, while on the Indian side certain key benefits- particularly in the automotive sector- will accrue gradually (with full duty-free treatment for automotive parts over a period of five to ten years and the step-by-step reduction of duties on vehicles to a target rate of 10% within the quota framework).

Accordingly, already at the stage of planning commercial contracts, it is advisable to take into account the timing of the entry into force of individual tariff thresholds as well as the conditions for benefiting from preferences, in particular compliance with the applicable rules of origin.

CBAM with No Exemptions for India

The agreement does not provide for any exemption for India from the European Union’s Carbon Border Adjustment Mechanism (CBAM). High-emission products, such as steel and aluminum, will therefore be subject to additional adjustment charges upon importation into the EU.

At the same time, the European Union has committed to allocating EUR 500 million to support climate protection measures and the decarbonization of industry in India.

New Documentation and Tax Compliance Obligations

The entry into force of the agreement entails additional compliance-related obligations. In order to benefit from preferential customs treatment, businesses will be required to meet the applicable rules of origin, including, inter alia, demonstrating the required level of value added and retaining audit documentation for a period of five years.

The agreement also opens access to the services market across 144 subsectors, which may give rise to additional tax obligations, including corporate income tax exposure, permanent establishment risks, withholding tax (WHT) implications, and potential goods and services tax (GST) registration requirements in India. The liberalisation of professional mobility may further intensify cross-border tax exposure and compliance obligations.

The Trade Agreement and Double Taxation Treaties

The trade agreement does not replace Double Taxation Agreements (DTAs). With respect to income taxes and withholding tax (WHT), the applicable DTAs (e.g. Poland–India) will continue to apply, and access to treaty benefits generally requires proper documentation of tax residence as well as fulfilment of substantive conditions (including, inter alia, beneficial ownership status).

Implications of the Agreement for Polish Businesses

For Polish companies, the planned EU-India agreement may in the future result in easier access to the Indian market, in particular for exporters of food products, juices, and automotive parts– subject to the agreement’s entry into force and compliance with the conditions for benefiting from preferential treatment.

At the same time, it has been indicated that sensitive agricultural products on the Indian side will remain subject to protective measures.

Prior to its entry into force, the agreement must undergo formal legal procedures and the ratification process in accordance with the requirements of the EU and India. The timeline of these steps will determine the actual date from which preferential tariff treatment may be applied.

From a strategic and tax planning perspective, businesses should in particular assess:

• applicable tariff thresholds and phase-out schedules;
• rules of origin and documentation models required to benefit from preferential rates;
• price adjustment clauses in long-term contracts;
• potential impact on import VAT bases and cash-flow;
• interaction with other regulatory frameworks, including CBAM where relevant.

Are You Planning Trade Activities Between the EU and India?

The planned free trade agreement between the European Union and India envisages significant changes in the areas of customs duties, the CBAM mechanism, and documentation obligations related to international trade.

Contact our experts to assess the potential implications of the agreement for your business and to properly plan actions in the area of customs and import-related settlements.