Union Budget 2026 FAQs: What is customs duty?

Union Finance Minister Nirmala Sitharaman will present the Union Budget for 2026-2027 on February 1.

The Budget outlines the government's fiscal plan for the next financial year, including expected revenues and expenditures.

Customs duty rates often undergo revisions in the Budget, reflecting the government's response to current economic challenges, industrial priorities, and geopolitical scenarios.

Customs duty, which is an integral part of India's fiscal landscape, refers to the tax imposed on goods imported into and exported from India.

All stakeholders, including businesses, economists, and international trade partners, keep a close watch on these changes as they directly impact trade flows, price structures, and market dynamics.

A major revenue generator

Customs duty, a major revenue generator, is a key tool that influences the country's trade policy, economic health, and industrial development. It is also levied to protect the domestic industry from foreign competition.

The Customs Act of 1962 defines the custom duty in India and all matters related to it that fall under the Central Board of Excise and Customs.

The revenue generated from customs duty is crucial for funding public sector undertakings, infrastructure projects, defence, education, and healthcare services.

The government adjusts duty rates to manage the import and export of goods, thereby influencing trade patterns. Higher duties on certain imports protect domestic industries from overseas competition, fostering local manufacturing and job creation. This approach helps develop local industries, reducing dependence on foreign goods. Lower duties on critical imports, such as raw materials and technology, on the other hand, promote industrial growth and maintain price stability.

The different types of customs duty are basic customs duty, countervailing duty (CVD), additional customs duty or special CVD, protective duty, and anti-dumping duty.

Customs duty is used as a tool to balance trade relations, respond to global market dynamics, and comply with agreements under the World Trade Organization and other international treaties.

Customs duty also plays a role in managing the fiscal deficit. By adjusting the duty rates, the government can influence its revenue stream, thus impacting the budgetary balance between income and expenditure.