UK-India trade deal takes effect with £400m first-year tariff cut

The UK-India free trade agreement has entered into force, triggering immediate tariff reductions and new customs rules across one of Britain’s most important emerging-market trade corridors.

Businesses have been able to trade under the agreement since 15 July, following its signature in July 2025. The UK government estimates that the deal could increase bilateral trade by £25.5bn annually in the long term, add £4.8bn to UK gross domestic product and raise real wages by £2.2bn.

The government expects tariff reductions to save exporters about £400m during the first year. Duties on Scotch whisky will fall from 150% to 40%, while tariffs on automotive exports will decline from 100% to 10% within an agreed quota. Duties on cosmetics of up to 22% will also be removed immediately or phased out over ten years.

For importers and exporters, the commercial impact extends beyond headline tariff rates. The agreement introduces streamlined customs procedures, clearer origin requirements and provisions intended to make digital and cross-border trade more predictable. UK businesses seeking preferential treatment must comply with the relevant origin rules and complete the required customs declarations.

The deal also reduces UK tariffs on a range of Indian clothing, footwear and food products. Lower import costs may ease working-capital requirements for British companies buying Indian goods, although the benefit will depend on product eligibility, supply contracts and whether savings are retained or passed through to customers.

Trade agreements can affect demand for letters of credit, guarantees, receivables finance and inventory funding as companies enter new markets or increase order volumes. Smaller exporters may require additional liquidity to cover production, shipping and the longer cash-conversion cycles associated with international sales.

The agreement’s entry into force is materially different from its earlier signing and from the government’s June preparation announcement. Companies can now claim the tariff preferences and use the operating rules governing the corridor.