- within Tax, Privacy and Employment and HR topic(s)
- with Inhouse Counsel
- with readers working within the Technology and Retail & Leisure industries
Introduction
In this budget update we have highlighted the key changes made to the indirect tax regime inthe Union Budget presented by the Hon'ble Finance Minister on February 1, 2026. Various newproposals have been tabled. Apart from amending the current provisions of indirect tax laws,certain new provisions have also been introduced.
CGST – Key Changes
1. Value of taxable supply - Section 15(3) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") is being amended to do away with the requirement of linking the post-sale discountwith an agreement. Now it provides for issuance of credit note by the supplier and reversal ofITC by the recipient as attributable to discount in accordance with the provision of Section 34 ofCGST Act.
2. Issuance of credit notes - Section 34(2) of CGST Act is being amended to include thereference of Section 15 in the said section.
3. Refund of Tax - Section 54(6) of CGST Act is being amended to provide for provisional refundeven in cases where refund is arising out of inverted duty structure. Further, Section 54(14) isbeing amended to remove the threshold limit for sanction of refund claims in case of goodsexported out of India with payment of tax.
4. Constitution of National Appellate Authority for Advance Ruling - Section 101A of the CGST Act is being amended to provide that the Government may, by notification, empower anexisting Authority (which also includes a Tribunal) as the National Appellate Authority forAdvance Rulings to hear appeals under section 101B of the CGST Act. This would further makethe mechanism for dispute resolution robust, ensuring consistency in advance rulings, andoffering greater certainty to taxpayers.
IGST – Key Changes
1. Place of supply of services where location of supplier or location of recipient is outside India - Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 ("IGST Act") isbeing omitted. Post such omission, the place of supply for "intermediary services" will bedetermined as per the default provision under section 13(2) of the IGST Act (in such case theplace of supply would be the location of the recipient of services).
Customs – Key Changes
1. Extent and commencement - Section 1(2) of the Customs Act, 1962 ("the Customs Act"), is being amended to extend the jurisdiction of the said Act beyond the territorial waters of India forthe purpose of fishing and fishing related activities.
2. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded - Section 28(6) is being amended so as to provide that the penalty paid under Section28(5) on determination under sub-section (6) thereof, shall be deemed to be a charge for non-payment of duty.
3. Applicability of advance ruling - Section 28J(2) is being amended so as to provide thatadvance ruling shall remain valid for a period of five years or till there is a change in law or factson the basis of which the advance ruling has been pronounced, whichever is earlier. Further, the proviso is also being substituted to provide that in respect of any advance ruling in force on the date on which the Finance Bill, 2026 receives the assent of the President, the Authority shall, upon a request by the applicant, extend the validity of the ruling for five years from the date ofthe ruling.
4. Removal of goods from one warehouse to another – Section 67 of the Customs Act is being amended to do away with the requirement of prior permission of the proper officer for removal ofwarehoused goods from one custom bonded warehouse to another.
5. Regulations regarding goods imported or to be exported by post or courier –Section 84 ofthe Customs Act is being amended to enable the Board to make provisions for the custody of goods imported or to be exported under the regulations framed under the said section.
6. Clause 136 of the Finance Bill seeks to amend the First Schedule to the Customs Tariff Act,1975 ("CTA")
a) in the manner specified in the Second Schedule so as to revise the rates in respect ofcertain tariff items with effect from February 2, 2026
b) in the manner specified in the Third Schedule so as to reduce the BCD rate from 20% to10% in respect of dutiable goods imported for personal use with effect from April 1, 2026
c) in the manner specified in the Fourth Schedule and Fifth Schedule with a view to harmonizecertain entries and to create new tariff lines in respect of certain items with effect from May 1, 2026.
6. Baggage Rules, 2016 is being superseded by the Baggage Rules, 2026 to rationalize the baggage provisions and addressing passenger related concerns at airports and resolution of interpretational issues; provide clarity in temporarily carriage of goods brought in or taken out toavoid unnecessary detention of goods, and restructure Transfer of Residence benefits for Indianresidents and foreign professionals based on duration of stay.^
7. The Customs Baggage Declaration Regulations, 2013, the Baggage (Transit to Customs Stations) Regulations, 1967 and the Passenger's Baggage (Levy of Fees) Regulations, 1966 are being superseded by the Customs Baggage (Declaration and Processing) Regulations,2026 to consolidate all baggage-related procedural provisions into a single, comprehensive andfacilitative framework.^
8. Deferred duty payment is being made monthly from the existing 15 days and a new class of'eligible importers' is being created. This is being done by amending the existing Deferred Payment of Import Duty Rules, 2016.
9. Basic Customs Duty ("BCD") decreased on Sodium antimonate [28419000] for use inmanufacture of solar glass from 7.5% to NIL.
10. BCD decreased on goods [84013000] for generation of nuclear Power from 7.5% to NIL.
11. BCD exemption extended to capital goods for use in manufacturing of batteries for stationary energy storage applications i.e. Battery Energy Storage Systems (BESS) also.
12. BCD exemption on 17 new drugs/medicines.
13. The duty exemption available for import of specified inputs for use in manufacture of goodsmeant for export (which is presently available for leather and synthetic footwear), is now beingextended to exporters of shoe-uppers.
14. The time period for exporting products manufactured using inputs imported under NotificationNo. 45/2025-Customs dated October 24, 2025 has been enhanced from six months to one yearin specific cases.
Customs – Other Changes
1. Notification No. 45/2025-Customs dated October 24, 2025
a. 102 exemptions/concessional rates are being extended upto March 31, 2028.
b. 22 exemptions/concessional rates are being lapsed on their end dates of March 31, 2026.
c. 14 unconditional exemptions (including 5 redundant exemption entries) are being lapsed.
d. Sunset clause is being removed from 3 unconditional exemption entries.
e. Sunset clause is being prescribed for 4 conditional exemption entries in accordance with Section 25(4A) of the Customs Act.
Excise – Key Changes
1. The Seventh Schedule to the Finance Act, 2001 is being amended to revise the National Calamity Contingent Duty (NCCD) Schedule rates on chewing tobacco, jarda scented tobaccoand other tobacco products under HS 24039910, 24039930 and 24039990 respectively with effect from May 1, 2026. The effective rate will remain the same (i.e. at 25%) vide notification No. 01/2026-Central Excise dated February 1, 2026.
2. For the purpose of computation of central excise duty on CNG compressed with biogas/Compressed Biogas (CBG), the value of such blended CNG shall exclude the value of Biogas/Compressed Bio Gas (CBG) contained in it and the appropriate Central Tax, State Tax, Union Territory Tax or Integrated Tax, as the case may be, paid on such biogas/CBG.
3. The additional excise duty of Rs 2 per litre notified to be levied on unblended diesel videnotification No. 11/2017-Central Excise dated June 30, 2017, as amended, is being deferred till March 31, 2028.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
