Union Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2026, announced a wide-ranging set of proposals relating to Indirect Taxes, focusing on customs and central excise reforms aimed at simplifying tariff structures, supporting domestic manufacturing, enhancing export competitiveness, and correcting duty inversions.
The proposals form part of the government’s broader strategy to improve ease of doing business while aligning India’s trade policy with evolving global supply chains and domestic production priorities.
Review of Exemptions and Tariff Simplification
As part of a continued rationalisation exercise, the Finance Minister proposed phasing out long-standing customs duty exemptions on items that are now being manufactured domestically or where imports have become negligible. The move is intended to reduce distortions in the tariff framework and encourage local production.
To further simplify duty determination, the Budget proposes to incorporate certain effective rates directly into the customs tariff schedule, rather than leaving them scattered across multiple exemption notifications. This is expected to bring greater clarity and certainty for importers and reduce classification disputes.
Sector-Specific Measures to Promote Exports
The Budget places special emphasis on export-oriented sectors such as marine products, leather, and textiles.
To support seafood exporters, the duty-free import limit for specified inputs used in processing seafood products for export is proposed to be increased from 1 per cent to 3 per cent of the previous year’s FOB export turnover.
In a significant relief for the footwear industry, the government proposed to extend duty-free import benefits for specified inputs to exporters of shoe uppers, a benefit currently restricted to leather or synthetic footwear exports.
Further, recognising the longer production and shipment cycles in these sectors, the Finance Minister proposed to extend the export obligation period from six months to one year for exporters of leather garments, textile garments, leather and synthetic footwear, and other leather products.
Energy Transition and Clean Manufacturing
In line with India’s clean energy ambitions, the Budget extends the existing basic customs duty (BCD) exemption on capital goods used for manufacturing lithium-ion cells to include those used in the manufacture of battery energy storage systems.
Additionally, to support the domestic solar manufacturing ecosystem, the Budget proposes a BCD exemption on the import of sodium antimonate, a key input used in the manufacture of solar glass.
Boost for Nuclear Power Projects
To strengthen long-term energy security, the government proposed to extend the basic customs duty exemption on imports required for nuclear power projects until 2035. The exemption will now apply to all nuclear power plants, irrespective of capacity, providing certainty for future investments in the sector.
Focus on Critical Minerals Processing
Recognising the strategic importance of critical minerals in advanced manufacturing and clean technologies, the Budget proposes to grant basic customs duty exemption on capital goods imported for processing critical minerals in India. This is expected to encourage domestic value addition and reduce import dependence.
Relief for Biogas-Blended CNG
To promote cleaner fuels, the Budget proposes to exclude the entire value of biogas while calculating central excise duty on biogas-blended compressed natural gas (CNG). The measure is aimed at improving the commercial viability of biogas projects.
Support for Civil and Defence Aviation
In a major boost to the aviation manufacturing and MRO ecosystem, the Finance Minister proposed to exempt basic customs duty on components and parts required for the manufacture of civilian, training, and other aircraft.
Additionally, raw materials imported for manufacturing aircraft parts used in maintenance, repair, and overhaul (MRO) operations in the defence sector will also be exempted from basic customs duty.
Incentives for Electronics Manufacturing
To deepen domestic value addition in consumer electronics, the Budget proposes a BCD exemption on specified parts used in the manufacture of microwave ovens, supporting India’s electronics manufacturing push.
One-Time Relief for SEZ Manufacturing Units
Addressing capacity utilisation concerns arising from global trade disruptions, the Budget announced a special one-time measure for manufacturing units in Special Economic Zones. Eligible units will be allowed to sell a prescribed proportion of their production into the Domestic Tariff Area (DTA) at concessional duty rates, subject to regulatory safeguards.
The government clarified that necessary regulatory changes will be undertaken to operationalise the measure while ensuring a level playing field for domestic manufacturers outside SEZs.
A Balanced Push for Growth and Simplification
Overall, the indirect tax proposals in Budget 2026 reflect a calibrated approach—reducing unnecessary exemptions, simplifying tariffs, encouraging exports, and strengthening strategic sectors such as energy, aviation, electronics, and critical minerals. The measures are expected to provide greater policy certainty while reinforcing India’s manufacturing and export competitiveness.
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