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Ministry of Finance | Central Board of Indirect Taxes and Customs (CBIC) | Department of Commerce
In the Union Budget 2026-27, Finance Minister Nirmala Sitharaman proposed a series of reforms in Customs and Central Excise to simplify the tariff structure and support domestic manufacturing. The budget aims to weed out long-continuing duty exemptions on items now manufactured in India, while incorporating effective rates directly into the tariff schedule to simplify duty determination.
Boosting Export Competitiveness To promote exports, the budget increases the limit for duty-free imports of specified inputs for seafood processing from 1% to 3% of the previous year’s export turnover. Duty-free input imports, already available for footwear, have been extended to Shoe Uppers. Additionally, the time period for exporting final products has been doubled from six months to one year for sectors like leather garments, footwear, and textiles.
Energy Security and Frontier Sectors Several proposals focus on energy transition and strategic manufacturing:
Green Energy: Customs duty exemptions for capital goods used in manufacturing Lithium-Ion Cells have been extended to include battery energy storage systems. Basic customs duty (BCD) is also exempted for sodium antimonate used in solar glass production.
Nuclear and Critical Minerals: Existing BCD exemptions for Nuclear Power Projects are extended till 2035 and expanded to all plants regardless of capacity. Exemption is also provided for capital goods required to process critical minerals in India.
Aviation and Electronics: BCD is exempted for components required to manufacture civilian and training aircraft, and for raw materials used in the Maintenance, Repair, and Overhaul (MRO) of defense aircraft. In electronics, BCD is exempted for parts used in manufacturing microwave ovens.
Special Economic Zone (SEZ) Flexibilities Addressing global trade disruptions, a one-time measure allows eligible SEZ manufacturing units to sell to the Domestic Tariff Area (DTA) at concessional duty rates. These sales will be limited to a prescribed proportion of their exports to maintain a level playing field for DTA units.
What is the objective of incorporating “effective rates” into the tariff schedule in the 2026-27 Budget? Incorporating effective rates directly into the tariff schedule aims to simplify the process of ascertaining the applicable duty for a particular item. Currently, taxpayers must often cross-reference various customs notifications to find the actual rate. Moving these rates into the main tariff schedule reduces administrative complexity and provides greater legal certainty for businesses.
Policy Relevance
The 2026-27 customs proposals represent a shift toward active industrial policy through fiscal levers.
Incentivizing Value-Addition: By removing exemptions on items produced domestically, the policy forces a shift toward local sourcing, thereby strengthening the “Make in India” ecosystem.
MRO Hub Aspirations: The BCD exemptions for aircraft parts and defense MRO units are strategic steps toward making India a regional hub for aviation maintenance, reducing the outflow of foreign exchange for these services.
Energy Transition Support: The long-term extension of nuclear energy exemptions and support for lithium-ion storage systems aligns fiscal policy with India’s Net Zero commitments and energy sovereignty.
Supporting SEZ Capacity: Allowing concessional DTA sales for SEZ units is a pragmatic response to global demand fluctuations, ensuring that high-tech manufacturing capacities do not remain idle during trade disruptions.
Relevant Question for Policy Stakeholders: How can the Ministry of Finance ensure that the “one-time concessional DTA sales” for SEZ units do not inadvertently lead to long-term market distortions for traditional DTA-based manufacturers?
Follow the full news here: BUDGET PROPOSALS FOR CUSTOMS AND CENTRAL EXCISE