Budget 2026: Customs Duty Cuts to Boost Aviation & Defence

Introduction to Budget 2026 Reforms

Presenting the Union Budget for 2026, Finance Minister Nirmala Sitharaman announced a comprehensive package of customs duty reforms aimed at strengthening domestic manufacturing and promoting exports. The measures, which span multiple strategic sectors, are designed to reduce input costs, enhance cost competitiveness, and deepen localisation in line with the government's 'Make in India' initiative.

Major Boost for Aviation and Defence

A significant focus of the budget's customs duty rationalisation was the aerospace and defence sector. To bolster India's domestic manufacturing capabilities, the Finance Minister proposed a complete exemption of basic customs duty (BCD) on components and parts required for the manufacture of civilian training aircraft and other civilian aircraft. This move is expected to build a more robust aviation manufacturing ecosystem within the country and reduce reliance on foreign imports.

For the defence sector, a parallel exemption was announced on raw materials imported for manufacturing aircraft parts. This exemption specifically targets maintenance, repair, and overhaul (MRO) activities conducted by defence units. By lowering the cost of essential raw materials, the government aims to position India as a competitive hub for defence MRO services, a critical component of national security and self-reliance.

Supporting Clean Energy and Nuclear Power

The budget also extended support to the clean energy and nuclear power sectors through targeted duty exemptions. Basic customs duty on the import of sodium antimonate, a key material used in manufacturing solar glass, will be exempted. This measure is intended to support the domestic production of solar energy components.

Furthermore, the BCD exemption on capital goods used for manufacturing lithium-ion cells for batteries has been extended to include those used for battery energy storage systems. In a move to ensure long-term energy security, the existing BCD exemption on goods imported for nuclear power projects has been extended until 2035 and expanded to cover all nuclear plants, regardless of their capacity.

Relief for Healthcare and Consumers

In a significant measure for the healthcare sector, the Finance Minister announced a BCD exemption on 17 anti-cancer drugs, providing relief to patients and reducing treatment costs. The budget also addressed the 'ease of living' by rationalising the customs duty structure for goods imported for personal use. The tariff rate on all dutiable goods for personal use has been reduced from 20% to 10%, making a wide range of imported items more affordable for consumers.

Key Customs Duty Announcements in Budget 2026

Promoting Exports and Easing Trade

To boost exports, the budget introduced several facilitative measures. For the marine products sector, the limit for duty-free imports of specified inputs used for processing seafood for export was increased from 1% to 3% of the Free on Board (FOB) value of the previous year's export turnover. For exporters in the leather, footwear, and textile industries, the time period for exporting the final product has been extended from six months to one year.

The government also announced procedural changes to simplify trade. Trust-based systems will be implemented to allow for minimal intervention and faster movement of goods. For authorized economic operators (AEOs), the duty deferral period is being enhanced from 15 to 30 days, improving cash flow for trusted importers.

Industry Perspective and Future Outlook

Industry leaders have largely welcomed the announcements, noting that a predictable tax framework is crucial for long-term investment in capital-intensive sectors like aerospace and defence. However, some long-standing demands remain, such as bringing Aviation Turbine Fuel (ATF) under the GST framework to eliminate cascading taxes and reduce operational costs for airlines. Rationalising GST on premium economy air travel and resolving the issue of input tax credit accumulation are other areas where the industry seeks further reforms.

Conclusion

The customs duty reforms outlined in Union Budget 2026 represent a clear and strategic push to strengthen India's domestic industrial base. By selectively reducing tariffs on raw materials and critical components, the government aims to lower manufacturing costs, encourage value addition, and enhance the global competitiveness of Indian industries. These measures are expected to provide significant momentum to the aviation, defence, clean energy, and healthcare sectors, aligning with the broader vision of a self-reliant and economically robust India.