INDIRECT TAXES IN UNION BUDGET 2026-27

The Union Budget 2026-27 and the Finance Bill, 2026, laid in the Lok Sabha on 1st February, 2026 inter alia, contain many proposals for indirect taxes, viz, customs duty, central excise duty, central goods and services tax (CGST) and integrated goods and services tax (IGST). The basic aim has been to simplify the tariff structure, support domestic manufacturing, promote export competitiveness, correction of inversion in duty, easing of refunds, taxation of intermediaries etc.

The proposals also seek to reduce the tariff rate on all dutiable goods imported for personal use from20 per cent to 10 per cent to rationalize the customs duty structure. To provide relief to patients, particularly those suffering from cancer, the Budget proposes to exempt basic customs duty on 17 drugs or medicines. It also proposes to add 7 more rare diseases for the purposes of exempting import duties on personal imports of drugs, medicines and Food for Special Medical Purposes (FSMP) used in their treatment.

It also proposes many measures for custom processes to have minimal intervention for smoother and faster movement of goods and greater certainty to the trade. Further, it proposes to enhance duty deferral period for Tier 2 and Tier 3 Authorized Economic Operators, known as AEOs, from 15 days to 30 days. It further proposes to provide eligible manufacturer-importers the same duty deferral facility, thereby encouraging them to get themselves accredited as a full-fledged Tier 3- AEO in due course.

Changes are also proposed in GST law (CGST and IGST) in relation to valuation (post sales discounts), provisional refund for inverted duty cases, Constitution of National Appellate Authority and intermediary services. The Budget has a focus on simplification, ease of doing business and ease of living.

Following is the snapshot of GST related changes (CGST & IGST) in the Finance Bill, 2026 (FB):

Indirect Taxes

 Customs Duty

• Overall tariff simplification has been attempted.
• Section 1(2) of the Customs Act, 1962 is being amended to extend the jurisdiction of the said Act beyond the territorial waters of India, for the purpose of fishing and fishing related activities.
• Section 28(6) is being amended so as to provide that the penalty paid under section 28(5), on determination shall be deemed to be a charge for non-payment of duty.
• Section 28J is being amended so as to provide that advance ruling shall remain valid for a period of five years or till there is a change in law or facts on the basis of which the advance ruling has been pronounced, whichever is earlier.
• A new section 56A is being inserted to provide special provisions for fishing and fishing related activities by an Indian-flagged fishing vessel beyond territorial waters of India.
• Changes made in Customs tariff rates and HSN Codes. New tariff lines have been created (w.e.f. 02.02.2026).
• Legislative changes in Customs Act, 1962 and Customs Tariff Act, 1975
• Baggage Rules, 2016 to be superseded by the Baggage Rules, 2026 to rationalize the baggage provisions and addressing passenger related concerns at airports and resolution of interpretational issues (w.e.f. 02.02.2026).
• Deferred duty payment is being made monthly from the existing 15 days and a new class of ‘eligible importers’ is being created. This has been done by amending the existing Deferred Payment of Import Duty Rules, 2016.
• Custom processes to have lesser intervention for fast and smooth movement.
• Validity period of advance ruling, binding on customs, to be extended from 3 years to 5 years.
• Custom warehousing framework to be transformed into warehouse operator centric system with self-declaration, electronic tracking and risk based audit.

• Basic custom duty exemption modified to cover batteries for stationary energy storage applications i.e. Battery Energy Storage Systems (BESS) also (w.e.f. 02.02.2026).
• Basic custom duty exemption extended to raw materials for  manufacture of parts of aircraft for maintenance, repair, or overhauling of aircraft or components or parts of aircraft, including engines, provided that the goods are imported by Public Sector Units  under the Ministry of Defence (w.e.f. 02.02.2026).
• Basic custom duty exemption extended to components or parts, including engines, of aircraft, for the manufacture of aircraft and parts thereof, provided that the importer adheres to the procedure set out in the IGCRS Rules, 2022 (w.e.f. 02.02.2026).
• Relief on imports of 17 new drugs / medicines (w.e.f. 02.02.2026).
• Custom duty exemption modified to include 7 rare diseases that are a part of National Policy for Rare Disease (NPRD), 2021 for extending custom duty exemption on drugs, medicines and food for special medical purposes, when imported for personal use (w.e.f. 02.02.2026).
• Review of various custom duty exemptions in which 102 entries are being continued, with or without modification, for two years, i.e. upto 31.03.2028. Further, 22 entries are being allowed to lapse on the end-date of 31.03.2026.
• Specified goods are exempted from Social welfare charge (SWS) vide Notification No. 11/2018-Customs. Further, Social Welfare Surcharge (SWS) will be levied on all goods falling under heading 9804 (all dutiable goods imported for personal use) (w.e.f. 01.04.2026).
• As one time measure, concessional rate of duty is proposed to facilitate sales by eligible units in SEZs to domestic tariff area (DTA).
• Ease of doing business measures to include single window approvals of cargo clearances, rolling out of custom integrated system in 2 years and non-intrusive scanning for risk assessment.

It may be noted that any changes in duty rate shall be effective from 2nd February, 2026 unless otherwise stated.

Central Excise Duty

• The Seventh Schedule to the Finance Act, 2001 is being amended to revise the NCCD Schedule rates on chewing tobacco (HS 2403 99 10), jarda scented tobacco (HS 2403 99 30) and other tobacco products including gutkha (HS 2403 99 90) w.e.f. 01.05.2026.
• Exemption from Central Excise Duty on value of biogas/compressed biogas (CBG) contained in blended compressed natural gas (CNG)
• Deferment of date of implementation of higher excise duty on sale of unblended diesel.

Goods & Service Tax (GST) (CGST & IGST)

CGST Act, 2017

• Section 15 of the Central Goods and Services Tax Act, 2017 to be  amended to do away with the requirement of linking the post-sale discount with an agreement and to refer to issuance of credit note under section 34 where the input tax credit is reversed by the recipient.
• Section 54 of the Central Goods and Services Tax Act, 2017 to be amended to extend the provisions of provisional refund to refunds arising out of inverted duty structure.
• Section 54 of the Central Goods and Services Tax Act, 2017 to be amended to remove the threshold limit for sanction of refund claims in case of goods exported out of India with payment of tax.
• New section 101A of the Central Goods and Services Tax Act, 2017 to provide that the Central Government may, pending the constitution of the National Appellate Authority, by notification empower an existing Authority, for hearing appeals under section 101B of the CGST Act, 2017; and to provide that the provisions of sub-sections (2) to (13) shall not be applicable where a Tribunal has been so empowered under sub-section (1A). An explanation to sub - section (1A) is also being inserted to clarify that the existing Authority also includes a tribunal (w.e.f. 01.04.2026).

IGST Act, 2017

• Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 to be omitted so as to provide that the place of supply for “intermediary services” will be determined as per the default provision under section 13(2) of the IGST Act.