Budget 2025: Centre may rejig customs duty on some electronics inputs

Finance Minister Nirmala Sitharaman

The Budget for 2025-26 may correct inversions in custom duties imposed on inputs or raw materials in a bid to boost local manufacturing of finished products, especially for parts used in the electronics sector, sources told Moneycontrol.

“We are looking at the duty structure, not specifically for products but for components on the input side, we are looking at rationalisation of the rate structure to remove the inverted duty structure," a government official said.

The government may consider import duty rejigs specifically for components or inputs that have limited potential when it comes to make in India.

“For instance, raw materials which cannot be made in India, or won’t be made in India. It is clear that we won’t be able to do significant value addition within the country,” the official cited above added.

Inverted duty structure is a situation where the tax rate on inputs is higher than the one levied on finished goods. The Centre is keen on correcting these anomalies for certain products in the Budget for FY26 scheduled to be presented on February 1, the sources added.

Industry sources separately told Moneycontrol that the Centre may consider lowering the duties on components or parts used for manufacturing electronic items such as smart phones as well as television sets.

Other sectors that face inverted duty structures include chemicals and steel, the industry sources added.

In the full Budget for 2024-25, Finance Minister Nirmala Sitharaman had said that the government will undertake a comprehensive review of the rate structure over the next six months in a bid to rationalise and simplify the structure to ease trade, remove duty inversions and reduce disputes.

She notably reduced the basic customs duty on mobile phones and related items to 15 percent. Levies on gold and silver were also slashed to 6 percent in the Budget for the current financial year.

Federation of Indian Export Organisations’ (FIEO) Director General Ajay Sahai said that the central government could rationalise import duties on components or parts that are not manufactured in India to make end-products more competitive and consequently boost exports.

Though lowering import duties on such inputs or raw materials can lead to some revenue loss, they do not pose a threat to domestic manufacturing, Sahai added.

“It is also time to correct inverted duty structures beyond MFN (most favoured nation) route and look at FTA (foreign trade agreement) sources. A time has come to take a call on whether duty exemptions should be given on parts sourced from nations with which India has an FTA, since their share in imports has risen to at least 75 percent,” Sahai told Moneycontrol.