MM TAX CLUB

The Union Budget 2026–27 has unveiled a series of targeted tax and duty reforms aimed at strengthening India’s manufacturing ecosystem, enhancing competitiveness, and encouraging exports. These measures are designed to attract investment, simplify processes, and provide fiscal support to both domestic and non-resident manufacturers.

Key Reforms for Manufacturers

1. Income Tax Exemptions for Non-Residents

• Five-year tax exemption for non-resident entities providing capital goods, equipment, or tooling to any toll manufacturer in a bonded zone.

• Introduction of a safe harbour provision for non-residents operating component warehouses in bonded warehouses, providing certainty in taxation.

2. Customs Duty & Import Incentives

• Deferred duty payment window for trusted manufacturers to ease working capital constraints.

• Increase in the limit for duty-free imports of specified inputs for processing seafood exports from 1% → 3% of the previous year’s FOB export turnover.

• Duty-free imports extended to inputs used in the export of shoe uppers, along with leather and synthetic footwear.

• Exemption from basic customs duty on parts used in manufacturing:

  • Microwave ovens

  • Aircraft components and parts

  • Raw materials for aircraft parts used in defense maintenance, repair, and overhaul (MRO) units

3. Export Facilitation

• Extension of export timeline from 6 months → 1 year for exporters of leather/textile garments and leather/synthetic footwear.

• Export cargo using electronic sealing will now be cleared directly from factory premises to the ship, simplifying logistics.

4. Trusted Manufacturer Recognition

• Regular importers with longstanding and reliable supply chains will be recognized in the risk system, enabling faster clearances and reduced compliance burdens.

5. Special Measures for SEZ Units

• A one-time measure to allow eligible manufacturing units in SEZs to sell products in the domestic tariff area at concessional duty rates, promoting utilization of SEZ outputs in the local market.

Impact on the Manufacturing Sector

These reforms are expected to:

• Boost investments from non-resident manufacturers.

• Ease cash flow and compliance burdens for trusted domestic manufacturers.

• Encourage exports through duty exemptions and extended timelines.

• Strengthen India as a global manufacturing hub, particularly in electronics, footwear, aerospace, and seafood processing.

The Budget 2026–27 clearly signals the government’s commitment to creating a business-friendly environment and providing a level playing field for both domestic and international manufacturers, paving the way for sustainable industrial growth.