February 05, 2026
4 mins read
The Union Budget 2026 introduces several indirect tax measures affecting customs duties, export incentives, and sector-specific inputs. The proposals centre on clean energy, healthcare, aviation, and industries that are export-orientated. Collectively, these consolidate customs duty breaks, updated schedules of exports, and industry-specific relief actions in the chosen industries.
The Union Budget 2026 was presented in Parliament on 1 February 2026. It set forth the fiscal priorities of the government during the financial year 2026-27.
The priorities included stability, growth of the manufacturing industry, fiscal consolidation and sector-related support. Amendment of the policy through indirect taxation was a significant aspect of the Budget 2026.
Basic customs duty exemption on capital goods for lithium-ion battery manufacturing and energy storage systems.
Basic customs duty exemption has been announced for capital goods used in processing critical minerals in India.
Duty exemption on sodium antimonate used in solar glass production.
Customs duty relief for components used in civilian aircraft and training aircraft manufacturing.
Customs duty exemptions have also been extended for specified imports required for nuclear power projects, with validity now pushed up to 2035.
Exemption on selected cancer drugs and duty-free imports for medicines for rare diseases.
Extension of the export fulfilment period for leather, footwear, and textile exporters from six months to one year.
Finance Minister Nirmala Sitharaman announced in Budget 2026 that the Income-tax Act, 2025 will replace the six-decade-old law and come into force from 1 April 2026.
This law introduces revised forms and procedures under the direct tax framework. The Act provides for revised forms and procedural changes under the Income-tax framework.
The Budget has not changed income tax slabs or raised the standard deductions in FY27, which means middle-class taxpayers do not have the extra rate relief. Some of the tax rules, such as an increase in STT of derivatives and changes in taxation on some instruments, change the tax treatment of certain market transactions for individual investors.
The fiscal deficit target of FY27 is pegged at 4.3% of GDP. This is presented alongside the fiscal consolidation path outlined in the Budget. These actions are accompanied by the fiscal contraction route that was laid out in the Budget.
The government has turned to controlling the public debt through establishing a target of Debt-to-GDP. It aims to bring this ratio down to about 55.6% in FY27 from 56.1% in FY26 and gradually reduce it to nearly 50% by FY30.
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Budget 2026 offers exemptions to customs duty on clean energy, aviation and pharmaceutical inputs. It also prolongs the time of export of selected sectors. Such provisions comprise the customs duty exemptions on the selected clean energy, aviation and pharmaceutical inputs, as well as the longer export schedules of some industries.
The limited tariff rates will simplify the classification of duties for the importers and the exporters, simplifying tariff categorisation and reducing classification disputes for importers and exporters.
This aids enterprises in planning, sourcing, and pricing more easily and can also minimise the compliance cost.
Significant modifications are the exemption of duties on lithium-ion battery entries, solar glass materials, aeroplane parts and the selection of medicines. Export-orientated industries such as leather and textile are given longer periods to fulfil exportations.
The Budget is procedural and compliance-related changes in the tax administration together with indirect tax. Though the indirect taxes are predominant in the policies of Budget 2026, the Budget also mentions the alterations in tax processes and the compliance regime.
The fiscal deficit target is 4.3% of GDP for FY27. It reflects continued fiscal consolidation while maintaining the fiscal consolidation path.
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