Union Budget 2026: Comprehensive Analysis of Indirect Tax Reforms in GST, Customs and Central Excise
The Finance Minister presented the Union Budget 2026 on 1st February 2026, unveiling an extensive package of indirect tax modifications aimed at bolstering domestic manufacturing capabilities, facilitating international trade, and fostering a compliance framework rooted in trust. The proposed amendments span across three major indirect taxation domains - Customs legislation, Central Excise provisions, and the Goods and Services Tax regime. These reforms collectively represent the government's commitment to modernizing India's taxation architecture while addressing long-standing procedural bottlenecks and compliance challenges.
Transformative Customs Law Amendments
The Budget proposes fundamental changes to the Customs Act, 1962, introducing provisions that expand regulatory reach, simplify operational procedures, and provide substantial relief to various stakeholder categories.
Expansion of Territorial Application for Marine Activities
The government has extended the application of customs provisions beyond India's territorial waters specifically for fishing operations and associated activities. This jurisdictional enhancement enables customs authorities to exercise regulatory control over fishing activities conducted in India's Exclusive Economic Zone as well as on the high seas. The amendment fills a significant regulatory gap and provides the legal framework necessary for comprehensive oversight of marine resource harvesting by Indian vessels.
To complement this jurisdictional expansion, the Budget introduces a precise definition of "Indian-flagged fishing vessel" within the customs legislation. This definitional clarity eliminates interpretational ambiguities and establishes a concrete legal foundation for regulating fishing operations under customs oversight.
Progressive Changes to Advance Ruling Mechanism
The validity period for advance rulings issued under customs law has been substantially enhanced from the existing three-year duration to five years. This extended validity applies unless modifications occur in either the applicable legal provisions or the factual circumstances underlying the ruling, whichever happens earlier. Furthermore, applicants who currently possess valid advance rulings may request extension of their rulings to the new five-year timeframe, providing continuity and certainty to ongoing business arrangements.
This reform addresses a persistent industry demand for greater predictability in customs treatment, reducing the administrative burden of repeatedly seeking rulings for continuing business operations.
Redefinition of Penalty Character
Under the revised framework, any penalty amount deposited pursuant to Section 28(5) in connection with duty determination proceedings will be legally characterized as a charge arising from non-payment of customs duty. This clarification strengthens revenue recovery mechanisms and eliminates legal uncertainty regarding the nature of such monetary impositions.
Comprehensive Framework for High Seas Fishing Operations
The Budget establishes an elaborate regulatory structure governing Indian-flagged fishing vessels operating beyond territorial waters. Key features include:
Duty Exemption for Ocean Harvest: Fish harvested by Indian vessels outside territorial waters will attract nil customs duty upon importation into India, recognizing the Indian origin of the harvesting effort despite the extra-territorial location of the catch.
Export Treatment for Foreign Landing: When fish caught by Indian vessels is landed at foreign ports, such landing will receive treatment as export of goods from India, enabling fishermen to access export benefits and incentives.
Comprehensive Procedural Authority: The government is empowered to prescribe detailed procedures through subordinate legislation covering declaration requirements, custody arrangements, assessment protocols, clearance mechanisms, transit procedures, and transshipment regulations for fish and fish products.
Liberalization of Bonded Warehouse Operations
A significant ease-of-doing-business reform removes the requirement for prior officer permission when transferring warehoused goods between bonded warehouses. Subject to compliance with prescribed conditions, such inter-warehouse movements may now proceed based on self-compliance, dramatically reducing processing time and administrative friction in supply chain management.
Enhanced Regulatory Powers Over Cargo Custody
The Board's regulatory authority has been expanded to encompass not merely examination of imported and export goods but also their custody. This enhanced framework allows for superior control mechanisms and clearer procedural guidelines in customs operations.
Rationalization of Exemptions and Tariff Structure
Following a comprehensive review of 124 conditional exemptions and concessional Basic Customs Duty entries contained in Notification 45/2025-Customs dated 24th October 2025 (originally set to expire on 31st March 2026), the government has adopted a differentiated approach:
- 102 entries receive extension until 31st March 2028, with some modifications where necessary
- 22 entries will lapse on 31st March 2026 without continuation
This rationalization targets exemptions on goods now manufactured domestically or attracting negligible import volumes, aligning incentive structures with current industrial realities.
Sector-Specific Customs Duty Interventions
The Budget delivers targeted relief and incentives across multiple economic sectors:
Energy Transition and Renewable Resources
Capital goods utilized by manufacturers producing battery energy storage systems using lithium-ion cell technology will enjoy Basic Customs Duty exemption, supporting India's clean energy transition. Similarly, sodium antimonate employed in solar glass manufacturing attracts duty exemption, reducing input costs for solar panel production.
Aviation Sector Support
The civil aviation industry receives relief through Basic Customs Duty exemption on parts and components used in manufacturing civilian aircraft and training aircraft. Defence aviation maintenance and repair operations (MRO) benefit from exemption on raw materials required for manufacturing aircraft parts for defence MRO purposes.
Nuclear Energy Infrastructure
Imports necessary for nuclear power projects across all plant capacities receive extended Basic Customs Duty exemption continuing through 2035, demonstrating long-term policy commitment to nuclear energy development.