Budget 2026: Customs duties cut, duty-free export timelines extended

Union finance minister Nirmala Sitharaman, in her Budget 2026 speech, announced a series of customs duty changes aimed at easing input costs, improving export competitiveness, and rationalizing the tariff structure across sectors.

Presenting the Union Budget 2026-27, Sitharaman said the government would raise the limit for duty-free imports of specified inputs used for processing seafood exports from the current 1% to 3% of the free-on-board (FOB) value of the previous year’s export turnover—a move expected to provide relief to marine exporters facing rising input costs.

She announced an expansion of the duty-free import facility for the leather and footwear sector, too. The benefit, previously available for exports of leather or synthetic footwear, will now be extended to exports of shoe uppers, allowing manufacturers greater flexibility in sourcing inputs.

Mint reported on 31 January that Budget 2026 is expected to mark a reset in the government’s philosophy towards supporting manufacturing—from offering incentives and protection to addressing the everyday frictions that prevent firms from growing, innovating, and competing globally, citing two people close to the discussions.

The move has drawn significant attention, as the government has taken a major reform step to boost domestic manufacturing amid a changing geopolitical environment.

The government had also withdrawn nearly 50 products from mandatory quality control order (QCO) requirements to ease compliance burdens, encourage manufacturing activity, and allow smoother imports of raw materials without procedural obstacles.

The measures are seen as part of a broader recalibration of industrial and trade policy aimed at improving supply chain resilience and lowering input constraints for domestic producers.

Reform package

In another key relief for exporters, the budget extended the time period for duty-free export of final products from the existing six months to one year for exporters of leather or textile garments, leather or synthetic footwear and other leather products, addressing long-standing industry concerns around production timelines and compliance pressures.

Beyond export-oriented sectors, the budget proposed exempting basic customs duty on raw materials imported for manufacturing of aircraft parts used in maintenance, repair, and overhaul activities by units in the defence sector, a step aimed at strengthening domestic defence capabilities and reducing dependence on imports.

To deepen value addition in consumer electronics manufacturing, the finance minister also announced an exemption from basic customs duty on specified parts used in microwave oven manufacturing.

The budget further sought to rationalize the customs duty structure for individuals by reducing the tariff rate on all dutiable goods imported for personal use from 20% to 10%, a measure expected to simplify compliance and reduce the cost burden on passengers.

In a move aimed at providing relief to patients, particularly those suffering from cancer, the government proposed to exempt basic customs duty on 17 drugs and medicines.

“The package of measures reflects the government’s broader attempt to align customs policy with manufacturing, export promotion, and public welfare objectives, while easing cost pressures across sectors facing global competition and domestic capacity constraints,” said Abhash Kumar, trade economist and assistant professor at Delhi University.