WHAT ARE CKD AND CBU VEHICLES AND HOW INDIA'S CAR IMPORT TAXES WORK
As India finalised a long-awaited free trade agreement (FTA) with the European Union, the spotlight is firmly back on one of the most debated aspects of the country's automotive policy, import duties on cars. Under the agreement, India is expected to sharply reduce tariffs on imported EU-built vehicles from as high as 110 per cent to 40 per cent initially, with a roadmap to eventually bring them down to 10 per cent .
To understand why this is a big deal for global carmakers and what it means for buyers, it is important to first decode the difference between CBU and CKD vehicles, and how they are taxed in India today.
What is a CBU (Completely Built Unit)?
A Completely Built Unit refers to a vehicle that is fully manufactured and assembled overseas and imported into India in finished, road-ready form. These cars do not undergo any assembly or manufacturing process locally.
CBUs attract the highest import duties in India, a policy designed to protect domestic manufacturing. Currently:
Fully built cars priced below 40,000 USD attract import duties of around 70 per cent
Cars priced above 40,000 USD face duties that can go up to 100â110 per cent, once basic customs duty, social welfare surcharge and compensation cess are included
This makes India one of the most protected major auto markets globally, a point that has repeatedly drawn criticism from international automakers.
What is a CKD (Completely Knocked Down) unit?
CKD vehicles are imported in parts and components, which are then assembled at a local facility in India. This allows manufacturers to claim lower import duties while also creating some level of local value addition and employment.
India currently applies a differential duty structure for CKD imports:
- 15 per cent import duty if the vehicle is imported in parts without a pre-assembled engine, gearbox or transmission
- 30 per cent import duty if the engine or gearbox is imported in pre-assembled form
This is why several luxury and premium carmakers including Mercedes-Benz, BMW, Audi, Volkswagen and Volvo assemble vehicles locally rather than importing them fully built.
Why the EU-India deal changes the equation
India has agreed to cut import duties to 40 per cent on a limited quota of around 2,00,000 EU-built internal combustion engine vehicles per year, with further reductions over time to as low as 10 per cent .
This would significantly narrow the cost gap between CBU and locally assembled CKD vehicles, allowing European brands to:
- Price imported models more competitively
- Introduce niche or low-volume products without committing to full-scale local assembly
- Test demand in India before investing in manufacturing capacity
Battery electric vehicles (EVs), however, will be excluded from these concessions for the first five years, as New Delhi looks to protect domestic EV investments.
What it means for buyers and manufacturers
For consumers, lower CBU tariffs could translate into more choice and sharper pricing in the premium and luxury segments. For automakers, especially European brands, the deal could reduce reliance on complex CKD operations while making India a more attractive and flexible market.
That said, even if negotiations are concluded, the agreement will still need to be finalised and ratified by both sides. Until then, India's high CBU tariffs and its CKD-led manufacturing strategy remain firmly in place.
2026-01-27T11:41:07Z