Budget 2026: Customs duty overhaul in the backdrop of trade deals on cards
Union Budget 2026: The exercise assumes importance as India has recently concluded multiple trade agreements and is actively negotiating several others, including with developed markets.
- Jan 9, 2026,
- Updated Jan 9, 2026 8:22 PM IST
The Centre is preparing to roll out a fresh overhaul of India’s customs duty architecture in the Union Budget for FY2027, a move that could significantly simplify import taxation while aligning India’s tariff regime with its expanding trade ambitions.
According to people familiar with the discussions, the government is examining a proposal to shrink the number of basic customs duty slabs as part of a broader rationalisation exercise. The objective is to make the tariff structure simpler, reduce disputes, and bring greater predictability for businesses operating in global supply chains.
The exercise assumes importance as India has recently concluded multiple trade agreements and is actively negotiating several others, including with developed markets. Trade negotiators have long flagged India’s complex tariff structure marked by multiple slabs, exemptions and surcharges as a challenge while offering duty concessions under free trade agreements. A streamlined customs regime would give India greater flexibility in trade talks while improving ease of doing business at home. Finance Ministry officials have also been working with officials from commerce ministry to seek inputs, and make changes accordingly.
Officials said a key focus of the overhaul is addressing classification-related disputes, which remain one of the biggest sources of customs litigation. Differences over how imported goods are classified often lead to prolonged legal battles and blocked capital for businesses.
The government is also looking to correct inverted duty structures, where raw materials or inputs attract higher import duties than finished goods, distorting domestic manufacturing incentives. Another area under review is the large number of discretionary exemptions, which add layers of complexity and frequently become points of dispute between importers and customs authorities.
Parallelly, the Central Board of Indirect Taxes and Customs (CBIC) is working to better align customs duties with the GST framework, with the aim of easing compliance across indirect taxes. The duty framework governing transactions between special economic zones and the domestic tariff area is also under review as part of the government’s broader SEZ reform agenda.
Last month, Finance Minister Nirmala Sitharaman had signalled that customs simplification would be among the government’s next major reform priorities, underscoring the policy push behind the exercise.
Alongside the tariff overhaul, the government is also likely to announce a customs amnesty scheme in the upcoming Budget to help clear a large backlog of legacy disputes, people aware of the matter said.
The proposed scheme is expected to cover long-pending customs cases stuck at various stages of litigation, including tribunals and courts. However, disputes related to gold, narcotics, smuggling and cases involving willful default are likely to be kept outside its ambit.
Under the framework being discussed, eligible taxpayers may be allowed to settle disputes by paying only the principal customs duty, with interest and penalties potentially waived. Officials believe such a move could unlock working capital for businesses while enabling faster recovery of government dues.
Total outstanding customs arrears including amounts under litigation, court stays and cases where appeal windows remain open stand at around Rs 1.5 Lakh crore.
The Centre is preparing to roll out a fresh overhaul of India’s customs duty architecture in the Union Budget for FY2027, a move that could significantly simplify import taxation while aligning India’s tariff regime with its expanding trade ambitions.
According to people familiar with the discussions, the government is examining a proposal to shrink the number of basic customs duty slabs as part of a broader rationalisation exercise. The objective is to make the tariff structure simpler, reduce disputes, and bring greater predictability for businesses operating in global supply chains.
The exercise assumes importance as India has recently concluded multiple trade agreements and is actively negotiating several others, including with developed markets. Trade negotiators have long flagged India’s complex tariff structure marked by multiple slabs, exemptions and surcharges as a challenge while offering duty concessions under free trade agreements. A streamlined customs regime would give India greater flexibility in trade talks while improving ease of doing business at home. Finance Ministry officials have also been working with officials from commerce ministry to seek inputs, and make changes accordingly.
Officials said a key focus of the overhaul is addressing classification-related disputes, which remain one of the biggest sources of customs litigation. Differences over how imported goods are classified often lead to prolonged legal battles and blocked capital for businesses.
The government is also looking to correct inverted duty structures, where raw materials or inputs attract higher import duties than finished goods, distorting domestic manufacturing incentives. Another area under review is the large number of discretionary exemptions, which add layers of complexity and frequently become points of dispute between importers and customs authorities.
Parallelly, the Central Board of Indirect Taxes and Customs (CBIC) is working to better align customs duties with the GST framework, with the aim of easing compliance across indirect taxes. The duty framework governing transactions between special economic zones and the domestic tariff area is also under review as part of the government’s broader SEZ reform agenda.
Last month, Finance Minister Nirmala Sitharaman had signalled that customs simplification would be among the government’s next major reform priorities, underscoring the policy push behind the exercise.
Alongside the tariff overhaul, the government is also likely to announce a customs amnesty scheme in the upcoming Budget to help clear a large backlog of legacy disputes, people aware of the matter said.
The proposed scheme is expected to cover long-pending customs cases stuck at various stages of litigation, including tribunals and courts. However, disputes related to gold, narcotics, smuggling and cases involving willful default are likely to be kept outside its ambit.
Under the framework being discussed, eligible taxpayers may be allowed to settle disputes by paying only the principal customs duty, with interest and penalties potentially waived. Officials believe such a move could unlock working capital for businesses while enabling faster recovery of government dues.
Total outstanding customs arrears including amounts under litigation, court stays and cases where appeal windows remain open stand at around Rs 1.5 Lakh crore.