The Call for Rationalization of Luxury Car Import Duties in India

Santosh Iyer, Managing Director and CEO of Mercedes-Benz India, has advocated for the rationalization of customs duties on imported luxury cars in light of the upcoming Union Budget. He argues that a simplified and lower duty structure would not only stimulate demand in the premium car segment but also enhance overall tax revenue for the government. Currently, imported passenger vehicles priced below $40,000 face a basic customs duty of 70%, while those above this threshold incur an effective duty of 110%. Iyer emphasizes that these vehicles cater to a niche market, representing only 5-8% of total car sales in India.

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Iyer's call for duty rationalization comes amid concerns over the depreciating Indian rupee, which has compelled luxury car manufacturers to increase prices. He suggests that improved fiscal management and a stable macroeconomic policy could help mitigate these challenges. He noted that Mercedes-Benz India plans to raise vehicle prices by 2% quarterly in 2026 due to rising input costs linked to currency fluctuations. Furthermore, Iyer highlighted that enhancing India's intercity travel infrastructure could further boost luxury car demand.

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India's luxury market is undergoing a significant transformation, projected to surpass $85 billion by 2030. This growth is characterized by a shift from traditional markers of wealth, such as ownership, to more experiential and purpose-driven expressions of luxury. The Kotak Private Luxury Index 2025 (KPLI) illustrates this change, tracking price fluctuations across various luxury sectors, including real estate and wellness. The index has shown a compound annual growth rate of 6.7% since its inception, indicating a nuanced understanding of how India's wealthy are redefining value.

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While Iyer's proposals are aimed at stimulating demand, critics may argue that reducing import duties could undermine local automotive manufacturers who may struggle to compete with lower-priced imports. Additionally, there are concerns regarding the potential impact on government revenue if customs duties are significantly lowered.

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Iyer stated, "Rationalising it, reducing it will make it simpler and help to grow, help get more taxes and get even better cars on the roads." He also emphasized the need for better fiscal management to stabilize the rupee, which he believes is crucial for improving demand in the luxury segment.

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• “A more stable macroeconomic policy, if there is a better fiscal management in the Budget that helps the forex movement and arrests the decline of the rupee, can help (improve) our demand” — Santosh Iyer, Managing Director and CEO, Mercedes-Benz India

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• “The same should happen for customs duties as well” — Santosh Iyer

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As the Union Budget approaches, the automotive industry will be closely monitoring any changes to customs duties on imported luxury vehicles. The outcome could significantly influence the luxury car market and broader economic conditions in India.

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