As Union Budget 2026 approaches, economic policymaking has been unfolding against a challenging global backdrop. Slowing trade growth, supply chain realignments, inflationary pressures and geopolitical uncertainty continue to influence investment and production decisions worldwide. In this environment, India’s fiscal and tax policy choices will play a crucial role in sustaining growth momentum and enhancing resilience of the domestic economy.
Indirect tax measures are central to this effort. Beyond revenue considerations, they directly affect cost structures, operational efficiency, and the ability of businesses to operate seamlessly across domestic and international markets. Expectations from the forthcoming Budget therefore center on simplification, certainty, and targeted relief measures that actively support economic activity.
GST Reforms: Supporting Working Capital, Export Facilitation, Procedural Clarity
The 56th GST Council meeting marked an important milestone on the simplified two-rate structure, signaling the government’s intent to make the GST regime more stable and transparent. Building on this, Budget 2026 is expected to advance structural reforms to strengthen liquidity, reduce compliance bottlenecks, and improve the overall business environment.
Working capital pressures have intensified, particularly for sectors impacted by rate rationalization. There is a strong expectation that the inverted duty structure (IDS) refund mechanism will be extended to input services and capital goods. Further, permitting provisional sanction of up to 90% of eligible IDS refund would significantly alleviate liquidity constraints. This is crucial as several goods have migrated to the 5% GST slab, resulting in accumulation of input tax credit where procurements attract higher tax rates.
Cross-border service providers have also faced uncertainty on intermediary services, with divergent interpretations of the place of supply provisions triggering litigation, estimated at over INR 3,357 crore as per the 55th GST Council meeting. A legislative amendment aligning the intermediary framework with the general place of supply rules would help curtail disputes and offer much needed clarity to service exporters.
Process rationalization is another cornerstone of GST reforms. Post-supply discounts continue to pose interpretational challenges. Aligning GST provisions to recognize commercial discount arrangements, irrespective of whether they are agreed before or after the time of supply and dispensing with the requirement of invoice-wise correlation for post-supply discounts have been a long-standing demand of India Inc. Legislative amendments to address these concerns is awaited.
Customs Reforms: Rate Rationalization, Amnesty scheme and Procedural Reforms
Customs policy continues to play a defining role in India’s trade and manufacturing ecosystem. In the prevailing global environment, characterized by muted demand and rising cost pressures, calibrated reductions in input tariffs can provide immediate cost relief and support manufacturing competitiveness, particularly for export-oriented industries.
Although incremental rationalization has been initiated, the Customs tariff structure remains intricate, with multiple duty rates and frequent amendments contributing to classification disputes and elevated compliance costs. Further simplification of duty slabs would enhance certainty and reduce administrative complexity.
Resolution of legacy Customs disputes is another critical area of focus. Introduction of a structured amnesty or dispute resolution scheme could help unlock blocked capital, reduce litigation, and enable businesses to redirect resources towards expansion and investment. Complementary procedural enhancements such as expeditious Special Valuation Branch clearances, deeper digitization, and time-bound adjudication would further strengthen trade facilitation and lower transaction costs.
Conclusion
Budget 2026 offers an opportunity to strengthen India’s trade and tax framework through targeted, practical reforms. Streamlined Customs duties, resolution of legacy disputes, expanded IDS refunds, and procedural clarity in GST can collectively reduce costs, ease working capital pressures, and improve predictability. These measures would enhance domestic competitiveness, support exports, and signal India’s intent to be a reliable and business-friendly destination in a challenging global environment.
This article is authored by an tax expert
Source from: https://timesofindia.indiatimes.com/business/india-business/budget-2026-after-gst-is-it-time-for-customs-reforms-amid-global-headwinds-top-expectations/articleshowprint/127807481.cms
