Union Budget 2025: Finance minister rejigs import tariffs to boost local manufacturing

“My proposals relating to customs aim to rationalize (the) tariff structure and address duty inversion. These will also support domestic manufacturing and value addition, promote exports, facilitate trade and provide relief to common people,” Sitharaman said in her budget speech on Saturday.

Sticking to her budget promise in July 2024 to undertake a comprehensive review of import tariffs, she proposed to remove seven tariff rates for industrial goods over and above the seven that were removed in the budget of FY24. That leaves only eight tariff rates, including the zero rate. The budget also proposed to levy not more than one cess or surcharge. This will exempt social welfare surcharge (SWS) on 82 tariff lines that currently also attract a cess.

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Sitharaman’s first major announcement in the budget on import duty relief came for patients, particularly those suffering from cancer and rare diseases; the budget fully exempted 36 life-saving medicines from basic customs duty (BCD) and said six others would now attract concessional duty of 5%. The new rates will be applicable from Sunday.

In order to boost domestic manufacturing, the budget included 35 additional capital goods for EV battery manufacturing, and 28 additional capital goods for mobile phone battery manufacturing in the list of exempted capital goods. “This will boost domestic manufacture of lithium-ion battery, both for mobile phones and electric vehicles,” Sitharaman said.

Similarly, customs duty on cobalt powder and waste, the scrap of lithium-ion batteries, and 12 more critical minerals has been waived ; this is in addition to 25 critical minerals fully exempted from BCD in the July 2024 budget.

Domestic production of technical textiles also received a major boost through duty waivers as FM added two more types of shuttleless looms to the list of fully exempted textile machinery. She also proposed to revise the BCD rate on knitted fabrics covered by nine tariff lines. In line with the ‘Make in India’ policy, the budget raised BCD on Interactive Flat Panel Display (IFPD) from 10% to 20% and reduced BCD to 5% on open cell and other components to remove duty inversion.

The budget also gave major boosts to the shipping industry by continuing BCD exemption on raw materials, components, consumables or parts for the manufacture of ships for another 10 years. The budget also proposes the same dispensation for ship breaking to make the business more competitive.

To provide cheaper inputs to gem and jewellery sector, the budget announced reduction in the basic customs duty on parts made from precious metals to 20% from 25% and cut import duty on platinum findings to 5% from 25%.

Kishore Kumar, Lead Customs and GST at consultancy firm Taxmann Allied Services said that the restructuring of customs duty would encourage local manufacturing.

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Saloni Roy, partner at Deoitte India said the budget proposals are aimed at export promotion and trade facilitation. “Reduction in customs tariff slabs from 15 to 8 should make classification easier leading to reduction in litigation on classification disputes. Also, Social Welfare Surcharge (SWS) has been exempted on 82 tariff items, where currently both cess and SWS is charged. However, effective customs duty on such commodities will remain the same. Imposition of either cess or SWS would simplify customs duty structure”.

To remove the classification issues in telecom industry, BCD rates were reduced from 20% to 10% on specified Ethernet switches. This, and the changes in products going into EVs and mobile phones would boost domestic manufacturing, she added.

“In the healthcare sector, exemption of BCD on 36 life-saving drugs and concessional rate of 5% on 6 life-saving medicines would help reducing the overall cost on treatment of cancer and other rare diseases. Similar exemption and concessions on import of bulk drugs for manufacturing of these life-saving drugs and medicines would foster domestic manufacturing,” Roy said.

The budget also made life easier for Indian multinationals that import products from related parties, with provisional assessments now having to end within three years, she pointed out. “There are related party import cases pending with the customs authorities of over five-six years which creates uncertainties in doing business. Bringing a time limit within which provisional assessments need to conclude, will help in timely closure of cases.”