Tax Reforms

[pib] Budget 2025-26 removes 7 Custom Duties for Industrial Goods

Prelims Only | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth
Note4Students

From UPSC perspective, the following things are important :

Prelims level: Customs Duty

Why in the News?

The Budget proposes to remove 7 customs tariff rates for industrial goods, following a similar step in Budget 2023-24. This will leave only 8 tariff rates, including a zero rate, making customs duty structure more transparent and predictable.

What is Customs Duty?

  • Customs Duty is a tax imposed on goods that cross international borders to regulate their movement.
  • It helps protect a country’s economy, jobs, environment, and residents by controlling imports and exports.
  • It prevents illegal trade, ensures fair competition, and generates government revenue.
  • The Customs Act, 1962, which defines and regulates customs duty in India.
  • The Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance manages customs duties.
  • Types of Customs Duties in India:
  1. Basic Customs Duty (BCD): Levied on imported goods (0-100%).
  2. Countervailing Duty (CVD): Imposed to balance foreign subsidies (0-12%).
  3. Social Welfare Surcharge (SWS): 10% surcharge to support welfare projects.
  4. Anti-Dumping Duty: Imposed on goods sold below market price to prevent unfair trade.
  5. Compensation Cess: Levied on items like tobacco and pollution-causing goods.
  6. Integrated GST (IGST): Imposed on imports at 5%, 12%, 18%, or 28% rates.
  7. Safeguard Duty: Applied when excessive imports harm domestic industries.
  8. Customs Handling Fee: 1% charge for customs processing.
  • Customs Duty Calculation: Based on product value, origin, composition, and international trade agreements.

Key Changes Announced to Customs Tariffs:

  • Tariff rates reduced from 15 to 8, Social Welfare Surcharge was removed on 82 items.
  • 36 new life-saving medicines exempted, 5% duty on six more drugs.
  • Full BCD exemption on 35 EV battery capital goods, 28 mobile battery items, and key minerals like cobalt & lithium.
  • 10-year duty exemption for shipbuilding materials; Ethernet Switch duty cut from 20% to 10%.
  • 20% export duty on crust leather removed, handicraft export timeline extended to 1 year.
  • Frozen fish paste duty cut from 30% to 5% to boost seafood exports.
  • Customs assessments limited to 2 years, quarterly importer reporting instead of monthly.

How India is Protecting Its Economy from Trade War Impact?

  • Rupee-based trade settlements with Russia, UAE & Sri Lanka to reduce dollar dependence.
  • Stockpiling essential imports like semiconductors, rare earth metals, and crude oil.
  • Attracting companies shifting from China with PLI incentives for manufacturing.
  • Paperless customs clearance, AI-driven trade monitoring, and blockchain documentation for smoother trade.
  • Strengthening global trade alliances like IPEF (Indo-Pacific Economic Framework) and Supply Chain Resilience Initiative (SCRI) (Japan-Australia) for supply chain stability.

PYQ:

[2018] Consider the following statements

1. The quantity of imported edible oils is more than the domestic production of edible oils in the last five years.

2. The Government does not impose any customs duty on all the imported edible oils a special case.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

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