FM Nirmala Sitharaman announces customs cuts, tax incentives, and export boost – indirect tax reforms, ETCFO
Finance Minister Nirmala Sitharaman today unveiled a series of key indirect tax reforms in the Union Budget for 2025-26, aimed at simplifying the customs tariff structure, supporting domestic manufacturing, and boosting exports.
Here are the major developments from Union Budget 2025 that matter the most for India Inc and the CFO community. Finance Minister Nirmala Sitharaman presents her eighth union budget.
Customs Tariff Structure Simplified
The Finance Minister announced the removal of seven tariff rates, building on the seven rates removed in the previous year’s budget. This reduction will leave just eight remaining tariff rates, including a ‘zero’ rate.
In a bid to simplify tax laws and provide relief to taxpayers, FM Nirmala Sitharaman, in the Union Budget 2025, proposed significant reforms in direct taxes, including a higher income tax exemption limit, rationalization of TDS rates, and a boost for employment and investment.
“To streamline the tariff structure, the government will apply appropriate cess to maintain effective duty incidence on most items, with a few seeing a marginal reduction,” the Budget report said.
Additionally, the Social Welfare Surcharge on 82 tariff lines will be exempted, with the government forgoing around ₹2,600 crore in indirect tax revenue from these changes.
Relief on Life-Saving Drugs
In a move to ease healthcare costs, 36 life-saving drugs and medicines have been fully exempted from Basic Customs Duty (BCD). Another six life-saving medicines will attract a concessional BCD of 5%. Furthermore, 37 additional medicines, along with 13 new Patient Assistance Programmes, will be fully exempt from BCD.
Support to Key Sectors
In Union Budget 2025-26, FM Nirmala Sitharaman announced the National Manufacturing Mission and a focus on green tech manufacturing, aiming to boost India’s industrial growth, sustainability, and job creation.
Several sectors crucial to India’s manufacturing ecosystem are set to benefit from the Budget’s focus on domestic production:Critical Minerals: Key minerals such as cobalt powder, lithium-ion battery scrap, and lead have been fully exempted from BCD to support industries reliant on these raw materials.
Textiles: Two types of shuttle-less looms will now be fully exempt from BCD. Additionally, the BCD on knitted fabrics has been revised to 20% or ₹115 per kg, whichever is higher.
Electronics: BCD on Interactive Flat Panel Displays (IFPD) has been increased from 10% to 20%. Meanwhile, the BCD on open cells and related components has been reduced to 5%.
The Budget also announced exemptions for 35 capital goods for electric vehicle (EV) battery manufacturing, and 28 additional capital goods for mobile phone battery production.
Boost for Exports
The government has introduced several measures to support exports:
Handicrafts: The export time limit for handicraft goods has been extended from six months to one year, with a further three-month extension possible.
Leather: Wet Blue leather is now fully exempt from BCD, and crust leather is exempt from the 20% export duty.
Marine Products: The BCD on frozen fish paste (Surimi) has been reduced from 30% to 5%, supporting the manufacture and export of fish and shrimp products.
Trade Facilitation and Compliance
The Budget also focused on easing compliance and improving trade facilitation:
Provisional Assessments: The time limit for finalising provisional assessments has been set to two years, extendable by one more year.
Voluntary Compliance: Importers and exporters will now have the option to voluntarily declare material facts post-clearance, pay the duty with interest, but without penalties.
End-Use Extension: The time limit for using imported inputs for specified end-uses has been extended from six months to one year.
