Beyond rate changes: The real indirect tax story of Union Budget 2026

By Karan KakkarWhile presenting the Union Budget 2026-27, the Hon’ble Finance Minister Smt. Nirmala Sitharaman emphasised that the proposals for Customs and Central Excise are aimed at simplifying the tariff structure, supporting domestic manufacturing, promoting export competitiveness, and correcting duty inversions.

Continuing the exercise of rationalising long-standing exemptions, the Budget also proposes removal of certain exemptions where domestic manufacturing exists or imports are negligible, and incorporation of effective duty rates from notifications directly into the tariff schedule to simplify rate determination.These measures collectively indicate that indirect tax policy is now being consciously aligned with trade facilitation, manufacturing growth, and administrative certainty.Tariff rationalisation to promote exports and domestic manufacturingA significant thrust of the Budget lies in export promotion through calibrated duty rationalisation.With an aim to promote exports, the limit for duty-free imports of specified inputs used for processing seafood products for export has been increased from 1% to 3% of the FOB value of the previous year’s export turnover. Further, the duty-free import facility currently available for exports of leather or synthetic footwear has now been extended to exports of shoe uppers as well.

Importantly, the time period for export of final products has been extended from 6 months to 1 year for exporters of leather or textile garments, leather or synthetic footwear and other leather products.In the energy transition sector, exemptions on capital goods used for manufacturing Lithium-Ion cells for batteries have been extended and customs duty on sodium antimonate used in manufacture of solar glass has been exempted.

The existing customs exemption for goods required for Nuclear Power Projects has been extended till 2035, and exemptions have also been provided for capital goods required for processing of critical minerals.

A notable excise measure excludes the entire value of biogas while calculating excise duty on biogas-blended CNG, further encouraging green fuel adoption.In the civil and defence aviation sector, it has been proposed to exempt basic customs duty on components and parts required for the manufacture of civilian, training, and other aircraft.

Further, an exemption has also been proposed on basic customs duty for raw materials imported for the manufacture of aircraft parts used in Maintenance, Repair, and Overhaul (MRO) activities by defence units.Additionally, special one-time measure, to facilitate sales by eligible manufacturing units in SEZs to the Domestic Tariff Area at concessional rates of duty is proposed. Ease of doing business through digital and trust-based customsTo make importing and exporting easier, the government is introducing several measures to make customs processes more digital and less intrusive.

Approvals required from different government agencies for cargo clearance will be handled through a single, interconnected digital window by the end of the financial year. For goods that do not require any regulatory compliance, customs clearance will be granted immediately after the importer completes online registration.A new Customs Integrated System (CIS) will be introduced within the next two years, bringing all customs-related processes onto one unified platform.

In addition, the use of AI-enabled non-intrusive scanning will be expanded with the aim of scanning every container at major ports, reducing the need for physical inspections.To further support trusted businesses, the duty deferral period for Tier 2 and Tier 3 Authorised Economic Operators (AEOs) has been extended from 15 days to 30 days. The validity period of advance rulings has also been increased from 3 years to 5 years, reflecting greater confidence in compliant taxpayers.

Moreover, the warehousing framework will move to a warehouse-operator-centric model that relies on self-declarations, electronic tracking, and risk-based audits.New export opportunities and ease of livingFish caught by Indian vessels in the EEZ or high seas has been made duty-free, and landing such fish at foreign ports will be treated as exports. The removal of the ₹10 lakh cap on courier exports opens global e-commerce opportunities for India’s small businesses and start-ups.For individuals, the tariff rate on personal imports has been reduced from 20% to 10%. Exemptions on 17 drugs/, medicines and inclusion of 7 more rare diseases for duty-free personal imports (of drugs, medicines and Food) reflect a citizen-centric approach.Baggage rules for international travel are also proposed to be revised in line with modern travel patterns.Honest taxpayers willing to settle disputes will be allowed to close cases by paying an additional amount in lieu of penalty.Key GST amendments addressing long-standing issuesThough major GST rate changes are absent, important legal amendments have been introduced.Amendment of the provision pertaining to place of supply (POS) for intermediary services is a landmark change. The POS of such services, when provided to foreign clients, was the location of the Indian supplier, which will now qualify as exports, since the location of foreign clients would now be considered as POS.Post-sale discounts have been liberalised by removing the requirement of a pre-existing agreement.

Suppliers can now issue credit notes to reduce taxable value, provided recipients reverse proportionate ITC.GST refunds have been made more taxpayer-friendly by extending the 90% provisional refund benefit to inverted duty structure cases and removing the ₹1,000 minimum refund threshold for exports with payment of tax.To address conflicting advance rulings across states, the Government has been empowered to notify an existing authority, including GSTAT, to function as the National Appellate Authority for Advance Rulings effective 1 April 2026.ConclusionUnion Budget 2026 reflects a mature shift in indirect tax policy, from control to confidence, from exemptions to rationalisation, and from manual intervention to digital facilitation. By correcting duty inversions, supporting sunrise sectors, empowering trusted traders, and resolving GST anomalies, the Budget lays a strong foundation for a faster, fairer and future-ready trade ecosystem aligned with India’s global manufacturing and export ambitions.

While the Hon’ble Finance Minister touched upon the issue of dispute resolution at a high level in her speech, no specific Customs Amnesty Scheme was proposed. The introduction of such a scheme would offer a balanced and pragmatic solution for resolving long-pending disputes under customs law. Drawing on the successful experience of amnesty and settlement schemes under GST and DGFT, a Customs Amnesty Scheme can significantly reduce litigation, improve voluntary compliance, unlock blocked revenue, and ease the burden on appellate and judicial forums.

By focusing on disputes that are procedural and non-fraudulent in nature, the scheme would create a win-win outcome for the government, industry, and the judiciary, making it a timely and necessary reform in India’s customs administration.(Karan Kakkar is Partner, Grant Thornton Bharat LLP. Shubham Mishra (Manager) and Nancy Gupta (Assistant Manager) at Grant Thornton Bharat LLP contributed to the article. Views expressed are personal.)