Union Budget 2025-26 presented by Union Minister for Finance and Corporate Affairs, Smt Nirmala Sitharaman in parliament today, focuses its customs proposals on rationalizing tariff structure and addressing duty inversion. The Minister said that the proposals will also support domestic manufacturing and value addition while promoting exports, facilitating trade and providing relief to common people.
Delivering on the promise to review customs rate structure announced in July 2024, the Budget proposes to remove seven customs tariff rates for industrial goods over and above the seven tariff rates removed in Budget 2023-24. This will leave only eight tariff rates, including ‘zero’ rate. The Budget also proposes to levy not more than one cess or surcharge. This will exempt Social Welfare Surcharge on 82 tariff lines that are subject to a cess.
Relief on import of Drugs/Medicines
In sector specific proposals, the Budget comes as a big relief to patients, particularly to those suffering from cancer, rare diseases and other severe chronic diseases. The Budget proposes to add 36 life saving drugs and medicines to the list of medicines fully exempted from Basic Customs Duty. The Budget also proposes to add 6 life saving medicines to the list attracting concessional customs duty of 5%. Full exemption and concessional duty will also respectively apply on the bulk drugs for manufacture of the above.
Specified drugs and medicines under Patient Assistance Programmes run by pharmaceutical companies are fully exempt from Basic Customs Duty, provided the medicines are supplied free of cost to patients. The Budget proposes to add 37 more medicines along with 13 new patient assistance programmes to the list.
Support to Domestic Manufacturing and Value addition
The Budget proposes to add 35 additional capital goods for EV battery manufacturing, and 28 additional capital goods for mobile phone battery manufacturing to the list of exempted capital goods. “This will boost domestic manufacture of lithium-ion battery, both for mobile phones and electric vehicles”, FM stated in her speech.
The Budget also proposes to fully exempt Basic Customs Duty on cobalt powder and waste, the scrap of lithium-ion battery, Lead, Zinc and 12 more critical minerals. Finance Minister said that this will help secure their availability for manufacturing in India and promote more jobs for our youth. This is in addition to the 25 critical minerals fully exempted of BCD in July 2024 Budget.
To promote domestic production of technical textile products such as agro-textiles, medical textiles and geo textiles at competitive prices, the Budget proposes to add two more types of shuttle-less looms to the list of fully exempted textile machinery. “I also propose to revise the BCD rate on knitted fabrics covered by nine tariff lines from “10% or 20%” to “20% or Rs.115 per kg, whichever is higher”, said Finance Minister in her speech.
In line with the ‘Make in India’ policy, the Budget proposes to increase the BCD on Interactive Flat Panel Display (IFPD) from 10% to 20% and reduce the BCD to 5% on Open Cell and other components. The Minister informed that it will rectify the inverted duty structure.
Considering the long gestation period of shipbuilding, the Budget proposes to continue the exemption of BCD on raw materials, components, consumables or parts for the manufacture of ships for another ten years. The Budget also proposes the same dispensation for ship breaking to make it more competitive.
The Budget also proposes to reduce the BCD from 20% to 10% on Carrier Grade ethernet switches to make it at par with Non-Carrier Grade ethernet switches. Finance Minister said that that this will prevent classification disputes.
Export Promotion
The Budget also contains certain tax proposals to promote exports. To facilitate exports of handicrafts, it proposes to extend the time period for export from six months to one year, further extendable by another three months, if required. The Budget also proposes to add nine handicraft items to the list of duty-free inputs.
The Budget also proposes to exempt crust leather from 20% export duty to facilitate exports by small tanners, while fully exempting BCD on Wet Blue leather to facilitate imports for domestic value addition and employment.
To enhance India’s competitiveness in the global seafood market, the Budget proposes to reduce BCD from 30% to 5% on Frozen Fish Paste (Surimi) for manufacture and export of its analogue products. It also proposes to reduce BCD from 15% to 5% on fish hydrolysate for manufacture of fish and shrimp feeds.
To promote development of domestic MROs for aircraft and ships, the July 2024 Budget extended the time limit for export of foreign origin goods that were imported for repairs, from 6 months to one year and further extendable by one year. The Budget 2025-26 proposes to extend the same dispensation for railway goods.
Trade facilitation and Ease of Doing Business
Presently, the Customs Act, 1962 does not provide any time limit to finalize Provisional Assessments leading to uncertainty and cost to trade. As a measure of promoting ease of doing business, the Budget proposes to fix a time-limit of two years, extendable by a year, for finalizing the provisional assessment.
The Budget also proposes to introduce a new provision that will enable importers or exporters, after clearance of goods, to voluntarily declare material facts and pay duty with interest but without penalty. “This will incentivize voluntary compliance. However, this will not apply in cases where department has already initiated audit or investigation proceedings”, said Smt Sitharaman.
The Budget proposes to extend the time limit for the end-use of imported inputs in the relevant rules, from six months to one year. This will not only allow industry to better plan their imports but also provide operational flexibility in view of cost and uncertainty of supply. Further, such importers will now have to file only quarterly statements instead of a monthly statement.
