After 2025’s big duty cuts, how far will Budget 2026 go on customs reforms?

As the Centre readies the Union Budget 2026, industry and tax experts expect the government to deepen customs reforms to ease trade, reduce disputes and support domestic manufacturing, after sweeping tariff rationalisation and sector-specific duty cuts announced last year.

What Budget 2026 may bring

EY India has suggested a one-time dispute resolution or amnesty scheme under customs law to settle long-pending cases.

“This initiative would follow the successful ‘Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019’, which helped monetize revenue blocked in litigation,” the consulting firm said.

Abhishek Jain, Partner and National Head, Indirect Tax, KPMG, stressed that a well-designed amnesty scheme for pending customs litigation could significantly reduce burden on courts and tribunals, unlock blocked revenue and provide certainty to businesses.

Another key proposal is the extension of the validity of customs advance rulings from the current three years to five years by amending the Customs Act. According to EY, this would provide greater tax certainty to businesses and lower compliance risks.

PwC expects continuity with acceleration in customs reforms, anchored around a trust-based ecosystem, faster clearances and stronger support for domestic manufacturing.

It has pitched for a time-bound customs amnesty to mitigate legacy disputes, along with deeper digitisation across the Customs Authority for Advance Rulings (CAAR), the Manufacturing and Other Operations in Warehouse Regulations (MOOWR) framework and the Authorised Economic Operator (AEO) programme to reduce port dwell times.

Budget 2026 is also expected to continue India’s multi-year effort to simplify its customs tariff structure.

PwC said policymakers may further prune customs duty slabs to five or six rates from the current eight, while pursuing targeted rate cuts on raw materials and intermediates to address duty inversions created by free trade agreements.

"For an importer, multiple tariff slabs cause complications with respect to the classification, structure, and disputes related to the appropriate rate of customs duty," Jain said. "It is thus, expected, that these 8 slabs may be rationalised to about 4 customs duty slabs."

Industry bodies are also pushing for a comprehensive review of customs exemptions with sunset clauses, targeted entry-based duty relief to cushion global tariff shocks, and reforms in Special Economic Zone (SEZ) norms so that customs duty applies only to the imported content used in goods sold into the domestic tariff area.

What changed in Budget 2025

Finance Minister Nirmala Sitharaman announced full BCD exemption on 36 additional life-saving drugs and concessional duty on six more medicines, along with exemptions for bulk drugs and medicines supplied under patient assistance programmes.

The government also fully exempted several critical minerals, including cobalt powder, lithium-ion battery scrap, lead and zinc, to ensure availability of key raw materials. In electronics, the BCD on interactive flat panel displays was raised to 20%, while duties on open cells and key components were cut to correct inverted duty structures.

Dozens of capital goods for EV and mobile phone battery manufacturing were added to the duty-free list.

Other measures included a 10-year extension of duty exemption for shipbuilding inputs, rate cuts on telecom equipment such as carrier-grade ethernet switches, export incentives for handicrafts and leather, and reductions in duties on items ranging from fish products to platinum findings.

Customs duties on motorcycles were also reduced across completely built, semi-knocked down and completely knocked down units.

With these changes as the backdrop, stakeholders say Budget 2026 will be closely watched for how far it goes in resolving legacy disputes, simplifying tariffs and deepening digitisation to make cross-border trade faster, cheaper and more predictable.