Budget 2026: Customs duty slabs set for big revamp; tariff structure to be simplified

Budget 2026: The Narendra Modi government is looking to revamp the customs duty slabs and tariff structure in the Union Budget 2026. FM Nirmala Sitharaman is expected to present the Budget on February 1, 2026. The government is weighing a plan to streamline the customs duty framework by cutting the number of tariff slabs to five or six from the existing eight. The proposed overhaul is aimed at simplifying the duty structure, lowering disputes and aligning import tariffs more closely with India’s industrial strategy and trade objectives. The review is likely to prioritise the settlement of classification-related disputes, address inverted duty anomalies and reduce the scope of discretionary exemptions. These changes are also intended to support the government’s broader effort to modernise customs operations.As part of a wider overhaul, the government is also looking to revisit and recalibrate the duty structure governing transactions between special economic zones and domestic tariff areas, the sources said, adding that this forms a key element of the ongoing SEZ reform process.The initiative is being pursued in the context of recently finalized trade agreements, ongoing negotiations with key partners and the push towards a paperless and frictionless customs system. Over the past two years, the Centre has steadily worked to rationalise customs duties by pruning slabs and withdrawing exemptions.

Customs collections

“The last budget customs duty structure saw a major rationalisation. There is room for further rationalisation of customs slabs to five-six,” a senior official told ET. The official added that groundwork for the changes has been underway for the past three to four months and a formal announcement is likely in this year’s budget.The Central Board of Indirect Taxes and Customs is working towards aligning the customs duty framework with the restructured goods and services tax system to create a more integrated and consistent tax regime, according to people familiar with the matter. Officials quoted by the financial daily said efforts are underway to address operational bottlenecks highlighted by industry participants.Those involved in the discussions noted that curbing disputes over tariff classification, a leading cause of prolonged litigation, remains a central objective of the exercise. The scale of the issue is reflected in data from a parliamentary standing committee on finance, which showed that as of December 2024, as many as 75,592 customs-related cases were pending, with recoverable dues totalling Rs 24,016.20 crore.Industry bodies have argued for the introduction of an amnesty mechanism in cases where disputes arise without any intent to evade duties, as a way to ease the litigation burden. Finance minister Nirmala Sitharaman had indicated last month that rationalising and simplifying customs duties would be the next major focus area in the government’s reform agenda.