The Fiscal Reform in Budget 2026 The sources frame Indirect Tax proposals as a critical component of a broader strategy for fiscal consolidation and s
The Fiscal Reform in Budget 2026
Indirect tax measures are aligned with a disciplined fiscal path. The government is targeting a debt-to-GDP ratio of 50±1 per cent by 2030-31 and has estimated the fiscal deficit at 4.3 per cent of GDP for BE 2026-27, down from 4.4 per cent in the previous year. In this context, indirect tax adjustments aim to support growth while ensuring a robust and resilient financial sector.
Customs Duty and Tariff Rationalisation
The primary objectives for Customs and Central Excise are to simplify the tariff structure, support domestic manufacturing, and correct duty inversions. Key interventions include:
- Simplification and Transparency: To reduce complexity, many effective duty rates previously managed through notifications are being incorporated directly into the Customs Tariff Schedule. Long-standing exemptions on items now manufactured domestically are being phased out.
- Strategic Sectoral Support:
- Energy and Minerals: Basic customs duty is exempted for capital goods used in processing critical minerals and manufacturing Lithium-Ion cells for battery storage systems. Nuclear power projects also receive extended duty exemptions until 2035.
- Electronics and Aviation: To deepen value addition, exemptions are provided for microwave oven components and parts for civilian and defence aircraft.
- Health and Personal Use: To improve "Ease of Living," duties on 17 cancer drugs and medicines for rare diseases are being exempted. Furthermore, the tariff rate for personal imports is halved from 20% to 10%.
- Export Competitiveness: The budget proposes increasing duty-free import limits for inputs used in seafood processing (from 1% to 3%) and extending export timelines for leather and textile garments to one year.
Reforms in Customs Processes
A significant part of the reform involves moving toward trust-based, technology-driven systems to minimise human intervention:
- Trusted Importers: Regular importers with long-standing supply chains will be recognised in risk systems to minimise cargo verification. The Customs Integrated System (CIS) will be rolled out within two years as a scalable platform for all processes.
- Efficiency Measures: The duty deferral period for Tier 2 and Tier 3 Authorised Economic Operators (AEOs) is being extended from 15 to 30 days. Additionally, a single digital window for all government agency clearances is expected to be fully operational by the end of the financial year.
Legislative Changes in GST
While many GST changes are coordinated with State Governments via the GST Council, several legislative amendments are proposed to streamline operations:
- Post-Sale Discounts: Sections 15 and 34 of the CGST Act are being amended to remove the requirement of linking post-sale discounts to a specific prior agreement, simplifying the use of credit notes.
- Refund Streamlining: Provisions for provisional refunds are being extended to cases involving inverted duty structures, and the threshold for sanctioning refund claims for exported goods is being removed.
- Intermediary Services: The place of supply for "intermediary services" will now be determined by the default provision under the IGST Act, providing greater legal clarity.
Central Excise and Special Zones
- Environmental Incentives: To promote the use of sustainable fuels, the value of biogas is excluded when calculating Central Excise duty on biogas-blended CNG.
- SEZ Flexibility: As a one-time measure to address global trade disruptions, manufacturing units in Special Economic Zones (SEZs) will be permitted to sell a proportion of their goods to the Domestic Tariff Area (DTA) at concessional rates.
COMMENTS