Budget FY26: Expectations around indirect taxes

While expectations on indirect tax changes announced as part of the Union Budget proposals have reduced over the years, this year’s Budget comes at a very important juncture of the Indian economy. While the post-pandemic period was expected to bring in more stability and progress worldwide and remove supply chain uncertainties for importing countries such as India, the conflicts in various parts of the world and the inward focus of large economies have meant that emerging superpowers like India, need to have a robust framework to deal with these challenges. This Budget could therefore focus on taking steps to move resolutely ahead to realise the Viksit Bharat goal by 2047.

From a GST standpoint, we need to bear in mind that changes to the GST legislation require approval of the GST Council, comprising of the Central and state governments. However, from a directional standpoint, there could be some areas of focus, which would be of interest to businesses. These include clarity on the thought process on GST rate rationalisation, inclusion of fuel products under GST on a staggered basis, areas of further simplification of the GST process, GST collections planned for FY26 etc. 

From a foreign trade standpoint, the Union Budget comes at a time when India is trying to promote local manufacturing and reduce import dependence and expand exports of non-traditional items such as defence equipment. 

The past year has seen many large economies announcing measures and taking steps to increase Customs tariffs as a measure to discourage imports of certain products and reduce such tariffs on other products where imports are essential for local manufacturing activities. In this aspect, India is not expected to be an outlier. In the past few years, we have seen an increase in the Customs duty rates of certain finished products, where the government would like to encourage domestic manufacturing as this policy has yielded good results such as in case of the mobile phone manufacturing ecosystem. There has also been a reduction in the Customs duties on import of components and sub-assemblies to enable cost-competitive manufacture of the finished products in India and this trend is expected to continue for identified sectors in the current Budget as well.

The past few years have also seen a significant simplification of the export and import process with technology playing a major role in this endeavour. Businesses have seen a reduction in the time and costs involved with clearance of both outbound and inbound cargo.However India continues to have a very high cost, compared to leading trading nations. Further simplification of the import/export processes would go a long way in helping merchandise exporters. A dispute resolution scheme for Customs disputes would also help in clearing up pending cases, releasing locked up revenues for the government and clean the slate for the future.

The production linked incentive scheme (PLI) has been a success in several sectors and there is the expectation that it would be extended to several more sectors and also allow sectors to get more time to fulfil the requirements. Calibrated Customs duty concessions are essential for the PLI scheme to succeedas several intermediate products and components need to be imported by manufacturers. It is also expected that more attention would now be given to the manufacturing of such intermediate products and components, especially in sectors such as consumer durables, electronics, medical devices etc.

Businesses would be expecting that the Union Budget provides measures to make them more competitive and introduce global best practices in international trade.

M.S. Mani is a Partner with Deloitte India. The views expressed are the personal views of the author.