The Finance Bill, 2026 proposes a wide-ranging overhaul of customs law and tariff structures, signalling a decisive move towards simplification, trade facilitation, and alignment of customs policy with India’s manufacturing and export priorities.
Rather than headline-grabbing rate changes, the customs proposals focus on rationalising duty exemptions, restructuring tariff lines, easing compliance, and removing legacy distortions in the Customs Act, 1962 and the Customs Tariff Act, 1975.
Customs Act Amended to Extend Jurisdiction Beyond Territorial Waters
One of the notable legal changes is the amendment to the Customs Act, 1962 to extend its jurisdiction beyond India’s territorial waters for fishing and fishing-related activities.
The Finance Bill also introduces a formal definition of an "Indian-flagged fishing vessel" and creates a new framework to govern fishing operations in international waters, including duty-free import of fish harvested beyond territorial limits.
This move is expected to provide clarity to the fishing industry while strengthening regulatory oversight.
Advance Rulings Get Longer Validity
To enhance certainty for importers, the validity of customs advance rulings has been extended to five years, or until a change in law or facts.
Additionally, existing advance rulings can now be extended upon request, reducing the need for repeated applications and litigation.
Warehousing Made Easier Under Customs Law
The Finance Bill removes the requirement of prior permission from customs authorities for the transfer of warehoused goods from one bonded warehouse to another.
This reform is aimed at reducing transaction delays and improving logistics efficiency, especially for large-scale manufacturers and exporters operating multi-location warehouses.
Major Customs Duty Rationalisation Across Sectors
The First Schedule to the Customs Tariff Act, 1975 has been extensively amended, reflecting the government’s shift from notification-driven exemptions to tariff-based rate clarity.
Key Duty Changes Include:
- Reduction in Basic Customs Duty on personal baggage imports from 20% to 10%
- Significant duty rationalisation for critical minerals, chemicals, rare earths, lithium, cobalt, silicon, graphite, and battery materials
- Sharp reduction in duties on processed nuts, seeds, marine products, and agricultural inputs
- Rationalisation of duty structures for MSME-linked products, while introducing minimum specific duties to prevent dumping
Importantly, many changes do not alter the effective duty incidence but simplify the tariff structure by shifting concessional rates directly into the Customs Tariff.
New Tariff Lines Created for Better Product Tracking
To improve monitoring and policy design, the Finance Bill creates new tariff lines for several products, including:
- Berries and processed fruit products
- Chemical intermediates and pharmaceutical precursors
- Battery components, separators, and electronic parts
- Aircraft parts, refrigerated containers and industrial equipment
These changes will help authorities track import data more accurately and support targeted industrial policy interventions.
Baggage Rules Overhauled from February 2026
The existing Baggage Rules, 2016 will be replaced by the Baggage Rules, 2026, effective midnight of 2 February 2026.
The new rules aim to:
- Address passenger grievances at airports
- Clarify rules for the temporary import and export of goods
- Restructure Transfer of Residence benefits based on duration of stay
This is expected to reduce disputes and unnecessary detention of passenger goods.
Customs Exemptions Pruned After Comprehensive Review
A major feature of the customs proposals is the systematic review of duty exemptions :
- Over 100 conditional exemptions extended till 31 March 2028
- 22 exemptions allowed to lapse from 31 March 2026
- Several redundant entries removed without changing effective duty rates
The government has clarified that this exercise is aimed at cleaning up the exemption framework, not increasing the tax burden.
Boost for Strategic Sectors: EVs, Renewables, Defence and Semiconductors
Customs exemptions and concessional duties have been extended or expanded for:
- Lithium-ion batteries and Battery Energy Storage Systems (BESS)
- Solar, wind, nuclear and green energy projects
- Aircraft manufacturing, MRO, and defence PSUs
- Semiconductors, electronics, and advanced manufacturing
These measures align customs policy with India’s long-term industrial and energy security goals.
Social Welfare Surcharge and AIDC: Technical Adjustments, No Burden Increase
The Finance Bill also makes technical adjustments to Social Welfare Surcharge (SWS) and Agriculture Infrastructure and Development Cess (AIDC), mainly to reflect tariff restructuring.
The government has clarified that:
- Effective incidence of SWS remains unchanged for most goods
- SWS will apply on personal imports under heading 9804 from April 2026
- AIDC rates continue without increase for aircraft tyres and other notified goods
A Structural Reset of India's Customs Framework
The customs proposals in the Finance Bill, 2026 mark a shift from ad-hoc exemptions to a cleaner, tariff-led regime. By focusing on predictability, ease of compliance, and sectoral alignment, the government has signalled a move towards a modern, transparent, and policy-driven customs system.
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