Budget 2025: Indirect Tax and Customs Duty Reforms
Moneylife Digital Team 01 February 2025
The Union Budget 2025-26, presented by finance minister Nirmala Sitharaman introduces significant changes to the customs tariff structure and indirect taxation to support domestic manufacturing, boost exports and facilitate trade. The government aims to reduce the inverted duty structure, rationalise tax rates and enhance voluntary compliance.
 
Rationalisation of Customs Tariff Structure
As part of the ongoing customs rate restructuring, the government has removed seven more tariff rates, reducing the total number to eight, including the 'zero' rate. Additionally, the social welfare surcharge has been exempted on 82 tariff lines that are subject to cess.
 
 
 
Sector-Specific Reforms
 
Pharmaceuticals and Healthcare
To improve healthcare affordability, 36 new life-saving drugs have been added to the list of medicines exempted from basic customs duty (BCD). Additionally, six more medicines now qualify for a concessional 5% duty. Pharmaceutical companies under patient assistance programms will also benefit, as 37 new medicines and 13 patient assistance initiatives have been granted duty-free status.
 
Electric Vehicles (EVs) and Battery Industry -- Critical Minerals and Lithium-Ion Batteries
The Budget has extended duty exemptions to cobalt powder, lithium-ion battery waste, lead, zinc and 12 other critical minerals, from 5% to nil, ensuring an uninterrupted supply for Indian manufacturers. In the lithium-ion battery segment, 35 additional capital goods for EV battery production and 28 for mobile phone battery production have been granted duty exemptions.
 
Textile Industry
To enhance domestic textiles production, especially in technical textiles, two more types of shuttle-less looms have been fully exempted from duty. Additionally, the customs duty on knitted fabrics has been revised from the previous 10% or 20% structure to a new slab of 20% or Rs115 per kg, whichever is higher.
 
IT & Electronics Manufacturing
The government continues to support the 'Make in India' initiative by increasing duties on finished electronic products, while reducing them on essential components.
  • The BCD on interactive flat panel displays (IFPD) has increased from 10% to 20%.
  • The BCD on open cell and other components used in LCD/LED TVs has been lowered to 5%.
  • Inputs and raw materials used for manufacturing mobile phone components, including PCBA, camera modules, and USB cables, have been fully exempted from duty.
 
Shipping and Telecommunication
The customs duty exemption for raw materials, components and consumables used in shipbuilding has been extended for another 10 years. Similarly, the BCD on carrier grade ethernet switches has been reduced from 20% to 10% to prevent classification disputes with non-carrier grade switches.
 
Marine and Aquaculture Exports
To enhance India's seafood export competitiveness, the customs duty on Frozen Fish Paste (Surimi) has been significantly reduced from 30% to just 5%. Similarly, the duty on fish hydrolysate—used in fish and shrimp feeds—has been slashed from 15% to 5%.
 
Leather and Handicrafts
The government has fully exempted customs duty on Wet Blue Leather, allowing easier imports for domestic processing. Additionally, Crust Leather, which previously had a 20% export duty, is now duty-free, benefiting small tanners engaged in exports. The duration for exporting handicrafts manufactured from duty-free inputs has been extended from six months to one year, further extendable by three months.
 
Renewable Energy and Solar Sector
The government continues to push for renewable energy adoption by reducing the cost of inputs of solar cells and solar modules. The customs duty on solar modules has been reduced from 40% to 20%, making solar installations more affordable. The duty on solar cells has been reduced from 25% to 20% to encourage domestic solar manufacturing. The Agriculture Infrastructure and Development Cess (AIDC) on solar modules has increased to offset revenue loss from duty reductions.
 
Space Industry 
Duty exemptions for ground installation of satellites, launch vehicles and spares will reduce costs for India's expanding space sector. Goods used in building launch vehicles and satellite launching facilities are now fully duty-exempt.
 
A few high-impact tariff changes that will help reduce chemical input costs. Glycerol crude from 30% to 20%—a byproduct of biodiesel production and an essential raw material in the pharmaceutical, cosmetic, food and chemical industries. Used to produce refined glycerin which is a key ingredient in soaps, skincare products, medicines and even explosives (like nitroglycerin). Phosphoric acid from 20% to 7.5%  critical ingredient in fertilisers, used extensively in agriculture and also used in food processing (soft drinks, dairy), metal treatment, and detergents.
 
To enhance ease of doing business, several new measures have been introduced. Customs Act amendments now set a two-year deadline for finalising provisional assessments, extendable by one year if justified. Importers/exporters can voluntarily declare material facts post-clearance and pay applicable duties with interest but without penalties. The deadline for utilising imported inputs has been extended from six months to one year, reducing cost uncertainty.
 
Key Amendments in the Customs Act, 1962
 
Introduction of Section 18A – Voluntary Revision of Entries
A game-changer for importers and exporters, Section 18A allows businesses to voluntarily revise customs declarations after goods have been cleared. This means that if an importer discovers discrepancies or omissions in duty payments post-clearance, they can self-correct the entries, pay the required duty with interest and avoid penalties. This reduces compliance risks by enabling businesses to rectify errors without waiting for audits or investigations. Avoids litigation and penalties that could arise due to unintentional misstatements Ensures smoother operations for businesses engaged in high-frequency imports and exports.
 
New Time Limit for Refund Claims
Previously, refund claims under Section 27 of the Customs Act lacked clarity on their time limits. The new amendment ensures that refund claims must be filed within one year from the date of duty payment or interest, particularly in cases where businesses amend their customs entries under Section 18A. Businesses will have a clear window for reclaiming overpaid duties, improving cash flow predictability. Investors in capital-intensive industries—such as manufacturing and pharmaceuticals—will see faster resolution of duty-related disputes, enhancing working capital management.
 
Establishment of an Interim Board – Replacing the Customs Settlement Commission
The Customs Settlement Commission, which previously handled disputes and tax settlements, will be replaced by an Interim Board with enhanced authority. This move is aimed at speeding up dispute resolution and reducing backlog in customs-related cases. Faster case resolutions mean lower legal costs for businesses. Provides a more structured and predictable framework for settling customs disputes. Reduces the risk of prolonged litigation, which can negatively impact investor confidence.
 
Key Amendments in GST Laws
 
The GST (goods and services tax) framework has also undergone significant amendments, particularly concerning Input Tax Credit (ITC), compliance mechanisms and dispute resolution. 
 
Improved Clarity on Input Tax Credit (ITC) Distribution
One of the most crucial GST amendments relates to ITC distribution for interstate supplies under reverse charge. Under the revised rules, businesses can now seamlessly distribute ITC across different branches and locations based on actual consumption. This reduces unnecessary tax costs for businesses operating in multiple states and allows for more effective cash flow planning by ensuring that ITC is correctly distributed without disputes. Encourages compliance among large enterprises.
 
Introduction of a Track and Trace Mechanism
A new provision mandates the use of Unique Identification Marking (UIM) for specified commodities under GST. This step is designed to improve the tracking of goods through the supply chain, ensuring better compliance and preventing fraudulent claims. Helps prevent counterfeit goods from entering the supply chain, benefiting legitimate manufacturers. Ensures greater transparency in GST credits, reducing the scope for tax fraud. Investors in supply chain and logistics companies will benefit from improved compliance mechanisms, leading to reduced regulatory risks.
 
Appeal Reforms – Mandatory Pre-deposit for Penalty Appeals
A significant change in the GST appeal process is the requirement of a 10% mandatory pre-deposit of the penalty amount before an appeal can be filed. This applies in cases where only penalties are levied, without any tax demand. This discourages frivolous appeals, leading to faster resolution of genuine cases. 
 
The Union Budget 2025-26 focuses on improving India's global trade competitiveness by simplifying taxation, incentivising domestic manufacturing, and reducing the burden on critical sectors. While increasing duties on some finished products, the government has simultaneously reduced input costs for industries to drive value addition. By extending customs duty exemptions to key areas such as pharmaceuticals, critical minerals, marine exports, and textiles, the Budget aims to enhance economic growth and job creation.
 
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r_ashok41
5 days ago
let us actual what actual data are
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