Less litigation, more certainty: Union Budget 2026’s quiet but crucial Indirect Tax reforms

The Union Budget 2026 has laid down a roadmap towards the next phase of India's growth trajectory and has kept the momentum regarding the target of becoming a strong manufacturing hub. The Budget brings in a comprehensive fine-tuning of India's indirect tax framework, with the announcement of wide-ranging customs and excise measures intended at streamlining tariffs, consolidation of domestic manufacturing, and enhancing export competitiveness.

The proposals are aimed at giving a push towards the government's intention to align trade policy with the government's larger goal towards 'Viksit Bharat'.

Extending the validity of customs advance rulings to five years demonstrates a clear intent to bring stability to business operations. This, along with customs rate rationalisation in strategic sectors like renewable energy, aviation, pharma, nuclear energy, electronics, and critical minerals, works towards strengthening manufacturing and exports.

The Union Budget has proposed GST amendments, such as liberalising post-sale discount conditions, aligning place-of-supply rules for intermediary services, and expanding provisional refunds to include inverted duty structures, which are very positive.

Under the proposed GST changes, the requirement for a prior agreement for post-sale discounts has been removed. However, the issuance of credit notes under Section 34 of the Act is still required, and the recipient must reverse the corresponding MC. This measure will reduce procedural complexity and make compliance easier for businesses operating high-volume transactions or incentive-based pricing models.

The Union Budget has proposed to allow 90% provisional refund arising from the inverted duty structure, which will have a positive impact on the cash flow and ease working capital constraints for affected taxpayers.

In order to ensure continuity in the appellate mechanism, the Budget proposes an amendment in terms of which any existing authority or tribunal will be now authorised to hear appeals under Section 101B of the CGST Act, till the time the National Appellate Authority (NAA) is formally constituted

The government has proposed an amendment under GST by removing intermediary services from the place of provision of services rules. This has brought much-needed clarity to the long-standing disputes between the taxpayers and the GST department regarding the taxability of intermediary services, with it now qualifying as an export of services.

Under the existing Customs Act framework, requiring a 'penalty' for the voluntary closure of cases creates inadvertent consequences for taxpayers. These include adverse accounting implications, reputational concerns, and audit objections, which often discourage taxpayers from seeking voluntary closure.

Thus, in order to redefine the nature of such penalties, the government has proposed an amendment in Section 28, making the penalty so paid under sub-section (5) a charge for non-payment of duty in voluntary compliance cases. This is aimed at encouraging an increase in voluntary compliance and a reduction in litigation.

New 148 tariff lines across 21 Chapters of the First Schedule to the Customs Tariff Act are proposed to be created, covering multiple sectors, mainly including steel, chemicals, plant-based products, food processing, etc. The new tariff lines are intended to improve product identification, get definite transaction data of precursor chemicals and aid in monitoring the movement of respective compounds, enabling tracking exports and determining policy measures for plant-based Botanical extracts.

Resultantly, there will be an addition of new tariff entries, amendments to existing tariff entries, and consequential substitution/deletion of certain tariff entries.

The author is a Partner ( Indirect Tax) at S&A Law Offices.

The opinions expressed in this article are those of the author's and do not purport to reflect the opinions or views of THE WEEK