Union Budget 2026: Govt Slashes Duties to Boost Manufacturing

• Finance Minister announced reductions in basic customs duties (BCD) on various items to address inverted duty structures
• The government increased the duty-free import limit for seafood processing inputs and extended the duty-free import facility
• Customs duties on key materials like Monazite and Sodium Antimonate were eliminated to aid solar glass production

Finance Minister Nirmala Sitharaman announced recently that basic customs duties (BCD) would be reduced to several items to eliminate inverted duty structures and promote domestic manufacturing.

The government implemented this measure to help the textile industry and the footwear industry and the marine industry after previously deciding to reverse quality control orders (QCOs).

“I propose to increase the limit for duty-free imports of specified inputs used for processing seafood products for export, from the current 1 per cent to 3 per cent of the Free on Board (FOB) value of the previous year’s export turnover”, Sitharaman stated.

“I also propose to allow duty-free imports of specified inputs, which is currently available for exports of leather or synthetic footwear, to exports of shoe uppers as well”, she added.

India's labor-intensive sectors face ongoing difficulties because the US established a 50% tariff which has been in effect since August 27, 2025. The Indian government currently works on a free trade agreement with the US while it aims to eliminate structural obstacles that hinder domestic manufacturers.

The government has worked to decrease expenses for manufacturers who depend on foreign-sourced materials which they have requested for a long time.

Also Read: Union Budget 2026 Live: Nirmala Sitharaman's 8th Consecutive Budget

Sitharaman's announcement included the elimination of BCD on certain materials, which includes Monazite rare-earth elements that were previously taxed at 2.5% and Sodium Antimonate which had a 7.5% tax rate because these materials serve vital functions in solar glass production. This move comes as China imposes restrictions on rare earth magnet exports.

“To deepen value addition in the consumer electronics sector, I propose to exempt basic customs duty on specified parts used in the manufacture of microwave ovens”, the Finance Minister noted.

The government has abolished customs duties for all parts used in aircraft production and maintenance operations which include engine parts. This initiative aims to establish domestic capability for building and servicing both military and commercial aircraft. The Budget proposed extending the duty deferral period for Tier 2 and Tier 3 Authorized Economic Operators from 15 to 30 days.

Sitharaman said, “I propose to provide eligible manufacturer-importers the same duty deferral facility. This should encourage them to get themselves accredited as a full-fledged Tier 3-AEO in due course. To provide greater certainty and for better business planning, I propose to extend the validity period of advance ruling, binding on Customs, from the present 3 years to 5 years”.

The system now enables trusted importers to use the risk system for faster cargo verification while export cargo can be electronically sealed from factory premises to the ship.

“For import of goods not needing any compliance, filing of the bill of entry by a trusted importer, and arrival of goods will automatically notify Customs for completing their clearance formalities. This will enable goods to be released immediately on arrival”, the Finance Minister said.