Union Budget 2026 may streamline customs regime

Building on recent decisions, The Union Budget 2026 could further boost India’s trade sector, as the Modi Government looks to offset headwinds from a depreciating rupee, and global geopolitical turmoil primarily caused by inconsistent actions and decisions by the Trump Administration in the United States.

It is learnt from informed sources that Union Finance Minister Nirmala Sitharaman, could give substantial details on the processes and roadmap of streamlining the customs and duties regime in her budget speech on February 1. This has been touted as the next step by the government, after the rationalization of Goods and Service Tax, and simplification of income tax.

“Ease of trade will be a major theme of the budget. The Finance Minister has already spoken about streamlining of customs and excise, and the budget could be a step in that direction. There could be simplification of valuations and classifications,” said a senior government official, aware of the budget deliberations.

In pre-budget consultations with Sitharaman and her team, the industry has also asked for extension of RoDTEP (Remission of Duties and Taxes on Exported Products) Scheme, which was extended last September till March 31, 2026. It is expected that the scheme could be extended by a few years, to ensure export competitiveness during a very uncertain global trade environment.

“What industry is anticipating right now is that there will be extension of RoDTEP, where you are getting benefits ranging from 0.30% to 3.90% as an incentive on export of goods. This scheme was originally going to expire on 30th September 2025, but it was extended by 6 months up to 31st March 2026. But now looking at trade uncertainty, I think RoDTEP will be extended for 3 to 5 years at a stretch, because without that, export of goods would really become unfeasible,” said Maulik Manakiwala, Partner – Indirect Tax, Tax & Regulatory Advisory at BDO.

Another issue, this time on the import side, is that of the depreciating rupee, which has hit nearly Rs 92 to a dollar as of January 29. Manakiwala said some customs rate rationalization is in order to help on the imports side.

“What we expect is a lot of procedural reforms. Today, as we speak, there are a lot of issues in terms of either the classification or the inverted duty rate structure. And there is an expectation that the government may come out with an amnesty scheme under customs. But the major emphasis is going to be the ease of business. So like what we saw for GST 2.0, we are expecting a Customs 2.0, more from a procedural aspect,” said Ritesh Kanodia, Partner, Aurtus Legal.

Kanodia said that as per industry expectations, the government may try to align the customs and duties rates, reduce the slabs, to make it more simple, more easy to understand.

“That is clearly an agenda in this project to simplify the customs law. Because today, let me tell you as an indirect tax practitioner, litigation under customs is quite extensive. There are classification disputes, there are complexities, there are clearance issues. So the pending cases have to be cleared as well,” he said.

EU FTA to boost trade

Just earlier this week, India concluded its biggest ever trade deal, with the European Union. Dubbed the ‘mother of all deals’ by the European Commission President Ursula von der Leyen, the deal is expected to double EU goods exports to India by 2032 after India agreed to eliminate or cut tariffs on 96.6% of shipments. The EU, in turn, will eliminate or reduce tariffs on 99.5% of goods imported from India over the same period. Modi has managed to keep the politically sensitive agriculture and dairy sectors out of the ambit of the FTA.

This comes even as US President Donald Trump’s aggressive actions alienates many traditional and new allies, including New Delhi, which has been hit by a 50% tariff rate by the US. This has led to realignments by both EU and India. The Modi government is now looking to conclude trade deals with Latin American and Middle East partners as well.

The agreement would give India a competitive edge in exporting labour-intensive goods like textiles and footware hit hard by Trump’s tariffs, including apparel, gems, jewelery and footwear. The EU nations, in turn, will be able to export more cars, alcohols and spirits, processed food items such as chocolate and pasta, aircraft, space and defence equipment, and electrical machinery into India.

Manakiwala pointed out that while India is pursuing trade deals with other nations, there is an openness with regards to China as well. This is light of an acknowledgment by policymakers that irrespective of recent tensions, the world’s second largest economy is an indispensable part of the global supply chain.

“If you go through the statistics, in the last three years, there has been a 345% increase in imports from China. It is a significant increase. Because at the end of the day, you are dependent on China for your chemicals, for APIs that are for pharmaceutical companies and all those major imports,” he said.