Key Indirect Tax changes in Union Budget, 2026

 

The Union Budget 2026 echoed the theme of streamlining tariff exemptions, integrating & digitizing customs clearances and a shift towards trust-based ecosystem. Alongside, necessary amendments are made in GST law to implement GST Council’s recommendations. While the Industry expected an Amnesty Scheme in Customs, it was notably absent.   Set out below is our detailed update on key Indirect Tax proposals introduced in the Union Budget 2026.   PART A: CUSTOMS LAW   Customs Duty Rate Changes Sector Change Effective February 2, 2026 Consumer Durables (Microwave Oven Components); Aviation & Aerospace (Aircraft Parts); Battery Energy Storage System BCD reduced to NIL Goods required for setting up specified Nuclear Power Projects and generation of nuclear power BCD reduced to NIL Sunset date: September 30, 2035 Effective April 1, 2026 Certain textile and leather garments, footwear and other leather products Export period extended from 6 months to 12 months for availing concessional duty on imports Aviation; Paper; Electronics (Parts of LED, semiconductors, lithium-ion cells, solar water heater components); Leather / Synthetic Footwear; Power Generation Equipment; Medical Devices (including cochlear implants, X-ray systems and braille watches) Exemptions extended till March 31, 2028 Goods imported for execution of export orders under jobbing arrangements Electrical Insulators; Boilers; Wind Power Components; Film & Television Equipment; Imaging Devices; X-ray Machines Exemptions will lapse Legislative Changes   1.  Penalty under Section 28(5) to be recharacterized as ‘charge’   Section 28(5) of the Customs Act allows taxpayers to voluntarily pay tax, interest & penalty and settle the disputes.   Section 28(6) is proposed to be amended to re-characterize such ‘penalty’ as ‘charge’ for non-payment of duty.   (Effective from enactment of Finance Bill)   NITYA Comments: Re-characterization of ‘penalty’ into ‘charge’ will eliminate fears of taxpayers relating to adverse accounting & financial disclosures and reputational concerns. This will encourage taxpayers to make voluntary payments and settle litigations. This will also help taxpayers to prove their eligibility for schemes under Customs law like AEO etc. which are otherwise not available if there is an SCN alleging fraud etc.   2.  Validity of Customs Advance Ruling to be extended to 5 years   Section 28J is proposed to be amended to extend validity of Advance Ruling from 3 years to 5 years from date of advance ruling.    For Advance Rulings issued in past, Taxpayer can request Customs Authority for Advance Ruling to extend their validity to 5 years from date of ruling.   (Effective from enactment of Finance Bill)   3.  Requirement to seek permission for movement of goods between warehouses to be removed   Section 67 is proposed to be amended to remove requirement to obtain permission from proper officer to move goods between warehouses.    This will now be a self-declaration and intimation-based mechanism. A separate digital module will be implemented to capture complete electronic trail of movements and operations in warehouses.   (Effective from enactment of Finance Bill)   4.  Amendments in Deferred Payment of Import Duty Rules, 2016   Rule 4 is proposed to be amended to extend duty deferment period from 15 days to 30 days.   A new class of ‘Eligible Manufacturer Importers’ is created to allow benefit of duty deferment with sunset date of March 31, 2028. Interested importers can file applications with Directorate of International Customs from March 1, 2026. (Effective from March 1, 2026)   NITYA Comments: Currently, Authorised Economic Operators & Authorised Public Undertakings enjoy duty deferment facility. These amendments aim to increase participation of importers in AEO program by making them familiar with higher compliance standards.   Trade Facilitation Measures   5.  Integration of all procedures related to Customs clearances in SWIFT 2.0   SWIFT 2.0 (advanced digital platform) was launched last year to unify and streamline custom clearances for submission of documents, obtaining licenses, permits etc. from various Government Agencies. Three Partner Government Agencies (‘PGAs’) (AQCS, PQMS and FSSAI), Ministry of Electronics & IT and Textile Committee were integrated.   Now, two more PGAs i.e. Central Drugs Standards Control Organization and Wildlife Crime Control Bureau will be integrated by March 31, 2026. All other PGAs (over 60) are targeted to be integrated by March 31, 2027.   (Circular No. 05/2026-Customs dated February 1, 2026)   6.  Automation of Import and Export procedures   Imports   Auto registration of goods on arrival (without importer/officer intervention) enabled for AEO T2 & T3 entities, Approved Eligible Manufacturer Importers, Importers with longstanding supply chains and Importers availing Direct Port Delivery (DPD).   Auto Out of Charge extended from AEO T2 & T3 entities to all Importers subject to duty payment and in absence of any additional compliance requirements.   Exports   Auto registration enabled for e-sealed cargo. For all other cases, online registration enabled via ICEGATE thereby eliminating physical interface. For this, a pilot project is being rolled out at Nhava Sheva, Mumbai which will be later expanded to other ports.   Auto Let Export Order will be granted for eligible Shipping Bills (not selected for assessment/examination). Customs officers will continue to have power to override automation (Out of Charge / Let Export Order) by putting hold in the system based on intelligence.   (Circular No. 06/2026-Customs dated February 1, 2026)   7.  E-Scheduling of Import Cargo Examination and Use of Body Worn Cameras   System is enabled for E-Scheduling of Cargo Examination allowing importers, customs brokers, officers and custodians to electronically schedule, view and reschedule examination slots.   Body Worn Cameras shall be used by customs officers for physical examination of cargos which will record everything starting from opening of packages until completion of examination. These recordings will be preserved for 2 years and in cases involving disputes or litigation, these shall be retained until final disposal.   (Circular No. 07/2026-Customs dated February 1, 2026) _____________________________________________________________________________   PART B: SEZ LAW   1.  Facilitation of DTA Sales by SEZ Units to address Capacity Utilisation   Eligible SEZ manufacturing units (yet to be specified) are proposed to be permitted to sell goods into the DTA at concessional duty rates subject to prescribed cap linked to their exports.    (Relevant statutory and regulatory amendments yet to be issued) _____________________________________________________________________________   PART C: GST LAW   1.  Conditions for claiming reduction of post sale discounts from value of supply to be removed   Section 15(3)(b) of the CGST Act is proposed to be amended to remove existing conditions of establishing pre-agreement of discounts and linkage with specific invoices for claiming reduction of discounts from value of supply. Condition of requirement of ITC reversal by recipient remains intact. Further, condition of issuance of GST credit note under Section 34 of the CGST Act is proposed to be added.    Section 34(1) is proposed to be amended to include scenario of post-sale discounts for issuance of credit note.   (Effective from date appointed in Notification to be issued after enactment of Finance Bill)   NITYA Comments: This amendment is in consonance with the recommendations of 56th GST Council meeting. It provides much-needed relief and flexibility to industries (like FMCG, Automobiles, Electronics etc.) where post-sale discounts are dynamic and governed by market situations. Specific mention of post-sale discounts in Section 34 is intended to align it with Section 15(3)(b).   Pending litigations will continue as this amendment is substantive and prospective.   2.  Place of supply for intermediary services to be changed to location of recipient   Section 13(8)(b) of the IGST Act is proposed to be omitted to make place of supply of ‘intermediary services’ under Section 13(2) as location of recipient.   (Effective from date appointed in Notification to be issued after enactment of Finance Bill)   NITYA Comments: This amendment is in consonance with the recommendations given in 56th GST Council meeting and will settle long age dispute around taxability of ‘intermediary services’.   Pending litigations will continue as this amendment is substantive and prospective.    In a recent case of IProcess Clinical Marketing v. ACCT, 2026-VIL-09-KAR, the High Court held that Notification dated September 30, 2019 providing place of supply of pharma related R&D services as location of recipient is clarificatory and thus retrospective. Though this ruling is incorrect, taxpayers may rely on its rationale to claim this amendment as retrospective.   3.  90% Provisional refund to be allowed for Inverted Duty Structure (IDS’)   Section 54(6) of the CGST Act currently providing provisional refund for zero-rated supply of goods and services, is proposed to be amended to include IDS refunds also.   (Effective from date appointed in Notification to be issued after enactment of Finance Bill)   NITYA Comments: Vide CBIC Instruction No. 06/2025-GST dated October 3, 2025, 90% provisional refund is being sanctioned for IDS refunds from October 1, 2025.   4.  Existing authorities can be empowered to hear appeals in absence of constitution of National Appellate Authority for Advance Ruling (‘NAAR’)   Section 101A of the CGST Act is proposed to be amended to provide that pending constitution of NAAR, Government may empower any existing authority including GST Appellate Tribunal (‘GSTAT’) to hear cases of contrary appellate advance rulings for same taxpayer in two or more States.   (Effective from April 1, 2026)