Comprehensive Analysis of Indian Customs & GST Reforms in 2024 Budget

Abstract

Aimed at increasing domestic manufacturing, supporting exports, and simplifying tax administration, the 2024 Indian Budget brings notable changes to customs taxes and the Goods and Services Tax (GST) system. Key modifications suggested in customs duty rates across several sectors—including agriculture, vital minerals, electronics, precious metals, and more—are thoroughly examined in this paper. It investigates the justifications for these changes and their possible effects on many sectors. Emphasising attempts to improve compliance, lower litigation, and ease trade, the article also looks at significant changes to the Customs Act, CGST Act, and related laws. Among the notable changes are tweaks to appeal processes, a new demand notice system, and input tax credit guidelines. The paper addresses how the government handles phasing away exemptions while extending or sustaining others depending on financial considerations. It also addresses changes in GST administration, including steps to fight tax avoidance and expedite refund policies. Reflecting the government’s larger economic strategy and its consequences for businesses and consumers both, this study provides insights into India’s changing trade and taxation environment by offering a complete summary of these fiscal policy developments.

Keywords: Indian Budget 2024; customs duty; GST reform; trade policy; tax administration; manufacturing incentives; export promotion; critical minerals; electronics industry; precious metals

Introduction

The Finance (No. 2) Bill of 2024 by the Indian government brings about a number of notable changes to the customs and Goods and Services Tax (GST) systems of the nation. These changes show a whole approach to increase home industry, support exports, simplify tax systems, and simplify administrative procedures. Examining their possible effects on several spheres of the Indian economy as well as the wider consequences for trade and fiscal policy, this article offers an in-depth study of the main reforms suggested in the budget.

Reforms of Customs Duty

Sector of Agiculture

The budget calls for several adjustments meant to help the agriculture industry. Especially the Basic Customs Duty (BCD) on Shea nuts has dropped from 30% to 15%. Industries that use Shea nuts as a raw material would probably gain from this decrease; this could help to lower the prices of goods such food products and cosmetics that call for Shea butter.

To increase output and competitiveness in the aquafarming and marine sectors, the government has instituted a number of duty reductions. Regarding fish feed as well as prawn and prawn feed, the BCD has dropped to 5%. This action is supposed to lower aquaculture farmers’ input costs, so fostering more production and maybe better industry profitability. Furthermore, the tax on live SPF Vannamei prawns and Black tiger shrimp broodstock has been lowered to 5%, which ought to help to improve the genetic quality of farmed prawns and maybe raise yields. By lowering levies on some components used in the production of aquatic feeds, the budget also addresses the demand for better inputs in aquaculture. For manufacture of aquatic feeds, the BCD on mineral and vitamin pre-mixes, krill meal, fish lipid oil, crude fish oil, and algal prime (flour) has been nil. This all-encompassing strategy for lowering input prices throughout the aquaculture value chain shows the government’s intention to grow this industry as a major actor influencing rural employment and agricultural exports.

Important minerals

The budget shows one of the most notable increases in terms of customs taxes on important minerals. Other than quartz and silicon, the government has totally removed the BCD from a wide range of minerals including antimony, beryllium, bismuth, cobalt, copper, gallium, ge Aimed at ensuring India’s supply chain for these vital resources, this broad cut in tariffs on crucial minerals is a calculated action. High-tech industry, renewable energy technology, and defence uses all depend on several of these minerals. Eliminating import taxes will help the government promote more imports and stockpiling of these resources, therefore lessening reliance on a small number of suppliers and lowering of geopolitical risks connected with the availability of certain minerals. The BCD has been dropped to 2.5% for graphite, silicon quartz, and silicon oxide. This differing approach implies that the government regards these materials as somewhat less important or thinks that some degree of protection for home manufacturers is still required. Industries including electronics, electric vehicles, solar energy, and sophisticated manufacturing are probably going to be affected widely by these changes in crucial mineral duties. The government wants to increase Indian manufacturers’ competitiveness in these fast-growing, technologically advanced areas by lowering input prices.

Mobile Devices and Electronics

Particularly with regard to mobile phones and their components, the budget brings major revisions to the tariff system for electronic items. From 20% to 15% the BCD on cellular mobile phones has dropped. Key components like Printed Circuit Board Assemblies (PCBAs) and chargers/adapters for mobile phones will likewise get their BCD dropped to 15%. Given India’s “Make in India” campaign, which aims to encourage domestic manufacture of mobile phones and electronics, this action is especially intriguing. The decrease in responsibilities may be interpreted as a refining of this approach, maybe meant to lower consumer mobile phone costs while yet preserving some degree of protection for domestic producers. The government has also changed policies to boost the manufacturing of other electrical components. For use in producing resistors, for example, the BCD on Oxygen Free Copper (OFC) Strip has been lowered to nil under some conditions. Manufacturers of electronic components could probably gain from this shift since it could help to lower prices and increase competitiveness. Fascinatingly, the government raised the BCD rate on PCBAs of certain telecom equipment from 10% to 15% while cutting duties on mobile phones and related components. This limited growth points to a complex strategy for safeguarding specific areas of domestic electronics production.

Precious metals

The budget brings major changes to the duty system for precious metals, which will probably have major effects on the gold and silver markets as well as on the jewellery business. From 15% to 6% the entire duty—including Basic Customs Duty, Agriculture Infrastructure and Development Cess, and Social Welfare Surcharge—on gold bars has been lowered. Gold dore, platinum, silver bars, and silver dore have likewise seen similar cuts. This significant change in policy is reflected in the lower responsibilities on valuable metals. It might result in higher gold and silver imports, therefore helping the jewellery business by lowering input costs. But it might also affect indigenous precious metal refiners and miners, who will now be more competitively challenged from imports. The government has also made relevant adjustments in allied fields. For example, the BCD on platinum and palladium utilised in the manufacturing of noble metal solutions, noble metal compounds, and catalytic converters has dropped from 7.5% to 5%. Industries including the automobile sector for catalytic converters and others using these metals in high-tech applications would probably gain from this shift. Aiming to lower smuggling (which generally rises with increased taxes), assist the jewellery business, and provide some degree of protection for indigenous producers, these modifications in precious metal duties indicate a balancing act by the government.

Other Raw Materials and Metals

The budget also covers obligations on other metals and raw commodities, which are absolutely vital for different sectors. From 2.5% to nil, the BCD on Ferro-Nickel; from 5% to nil, the BCD on Blister Copper. Industries using these resources as inputs, including stainless steel producers in the case of Ferro-Nickel, will probably gain from these cuts. Furthermore extended by the government is the BCD exemption on ferrous scrap until March 31, 2026. For the steel sector, this expansion is important since it lowers the input prices for secondary steel manufacturers depending on scrap. Likewise, the 2.5% concessional BCD rate on copper scrap has been maintained to help businesses recycling and using copper scrap. The exemption on several raw materials for the manufacturing of CRGO (Cold Rolled Grain Orientated) steel has been extended up to March 31, 2026, therefore benefiting the electrical steel sector. This exemption has also been expanded to cover raw materials for CRGO steel falling under a particular tariff item, so perhaps increasing the range of goods that might profit from it.

Sector Textiles and Leather

With an eye on exports especially, the budget presents many policies meant to help the leather and textile industries. Subject to several restrictions, the BCD on MDI (methylene diphenyl diisocyanate) for the manufacture of spandex yarn has dropped from 7.5% to 5%. This lowering is meant to correct duty inversion and may help Indian spandex yarn producers become more competitive. The BCD on real down filling material from duck or goose has been lowered from 30% to 10% when used in the manufacture of textile or leather garment for export in an attempt to assist high-end textile and leather garment exports. This cut could enable Indian producers to more successfully enter the worldwide premium apparel market. The budget also grants exemptions to wet white leather, crust leather, and completed leather for the production of textile or leather clothing, leather/synthetic footwear, or other leather goods for export. Furthermore excluded are some extra accessories and decorations applied in the production of these goods with export orientation. These steps show the government’s will to help value-added exports in the leather and textile industries, major sources of foreign exchange profits and employment generation.

Petrochemicals and Chemical Materials

The budget suggests potentially important reforms in the petrochemical and chemical sectors. The BCD on ammonium nitrate has especially been raised from 7.5% to 10%. Industries that rely on ammonium nitrate as an input may be affected by this rise, thereby possibly resulting in more expensive fertilisers and explosives producers pay for. Under CTH 3920 and 3921, the tariff rate for several plastic products has been raised to 25%, therefore impacting the advertising and signs sectors. PVC Flex Films/Flex Banners specifically will draw a 25% tariff from July 24, 2024. On products other than PVC Flex Files/Flex Banners, the government has changed the relevant notification to keep the current rate of 10%/15%. This selective increase points to a focused strategy to either maintain rates for some plastic items while protecting or discouraging the usage of specific ones.

Pharmacists and Healthcare

The budget shows a concentration on making some important drugs more available by lowering import taxes. On three particular cancer medications—Trastuzumab Deruxtecan, Osimertinib, and Durvalumab—the BCD has been completely waived. This exemption probably helps to lower the cost of these sophisticated cancer treatments, hence increasing their availability to patients. These focused exemptions for cancer therapies mirror the government’s strategy for juggling the demands of the home pharmaceutical sector with the necessity of providing vital, usually costly drugs more reasonably priced. Although these particular medications have been exempt, the overall structure of pharmaceutical import taxes stays mostly unaltered, implying a selective approach to lower drug duties.

Machining tools and capital goods

The budget has clauses supporting the expansion of particular sectors by means of adjustments in capital goods duty rates. Especially some designated capital products have been included to the list of exempted items for use in the production of solar cells and modules. This feature is probably meant to help India, with its lofty renewable energy targets, lower the cost of building or expanding solar manufacturing facilities there. Some designated items have been included to the exemption entry in the petroleum industry for usage in operations related to exploration. By lowering expenses for oil and gas exploration firms, this increase of exemption can inspire more exploration activity. These focused exemptions for capital goods in particular sectors show how the government employs customs tariff policy as a tool to boost investment and expansion in strategically important areas.

Reform of Export Duties

The budget brings major adjustments to the raw hide, skin, and leather export duty system. For these goods, the government rationalised and streamlined the export tariff rates. For example, the duty on tanned fur skin has dropped from 60% to 20%; the export duty on wet blue chrome leather and crust leather has dropped from 40% to 20%. These cuts in export taxes on semi-processed leather goods should boost their sales, therefore boosting the leather sector. Finished leather does, however, still draw no export duty, which suggests the government’s inclination for promoting value-added exports in this industry.

Exemption Review

The budget includes a thorough evaluation of customs duty exemption covering 188 conditional exemption or concessional rates. This evaluation captures the government’s attempt to rationalise the exemption system by eliminating obsolete exemptions and extending or continuing others depending on present economic needs.

Results of this review consist in:

• Extended up to March 31, 2029 are thirty exemption/concessional rates.
• Up until March 31, 2026, 126 exemption/concessional rates are being kept continuous.
• Set to expire on their expiration dates of September 30, 2024, are 28 exemption/concessional rates.
• Four exemptions are removing end dates since they are covered by exclusion clauses.
• This methodical assessment and rationalising of exclusions show the government’s commitment to streamline the customs tariff system while keeping support for important sectors and activities.

Legislative Adjustments

The budget calls for some major changes to important laws controlling GST and customs. These changes seek to boost trade, lower litigation, and increase compliance.

Changing the Customs Act, 1962

Proposed to the Customs Act, 1962 are several significant revisions. Section 28 DA is being changed to allow acceptance of several kinds of proof of origin supplied in trade agreements. This revision seeks to match the section with recent trade agreements allowing for self-certification, hence possibly streamlining processes for importers claiming preferential tariff treatment. Section 65 is now including a new proviso empowering the Central Government to list specific industrial and other operations forbidden in a warehouse. This amendment might thereby increase oversight over operations carried out in customs bonded warehouses. Presumably meant to improve government control and oversight of customs processes, the budget also suggests changes to Sections 143AA and 157.

Custom Tariff Act, 1975 Amendments

Proposed are major revisions to the Customs Tariff Act, 1975. Especially Section 6, which marks the Tariff Commission’s winding-up, is missing. This shift may affect future tariff-related policy decisions and review process. The First Schedule to the Customs Tariff Act is being changed to raise rates on specific tariff items and establish new tariff lines for varied products including defence products, technical textiles, sustainable blended aviation fuel, products used in Indian semiconductor machines, e-bicycles, natural menthol and printer cartridges. These adjustments mirror the government’s attempts to match changing economic priorities and growing sectors of industry with the tariff system.

Changes to GST Laws

The budget suggests numerous significant changes to associated legislation including the Central Goods and Services Tax (CGST) Act, 2017. These amendments seek to solve different operational problems in the GST system, increase compliance, and lower litigation. One major change is the CGST Act’s Section 9 revision bringing Extra Neutral Alcohol used in the production of alcoholic spirits for human use out of central tax’s purview The Integrated GST (IGST) Act and the Union Territory GST (UTGST) Act also call for such adjustments. This amendment explains the tax status of a good whose dispute between the centre and states has generated. The CGST Act is now included a new Section 11A empowering the government to regularise non-levy or short levy of central tax due of any widespread practice prevalent in trade. This clause may help to solve structural problems with tax collecting without punishing people who followed accepted norms. The rules on the input tax credit (ITC) are suggested to undergo major revisions. Section 16 of the CGST Act is including new sub-sections (5) and (6) to loosen the time limit for availing ITC, retrospectively from July 1, 2017. For taxpayers who might have missed the former deadlines for claiming ITC, especially in the first years of GST implementation and in circumstances where registration was cancelled and subsequently revoked, these adjustments offer relief. Notwithstanding whether the instances constitute fraud or not, the budget also suggests adding Section 74A in the CGST Act to offer a shared time limit for issuing demand letters and orders for FY 2024-25 onwards. This modification seeks to simplify the procedure of generating tax requests and might help to lower litigation. Proposed are also changes to appeal processes. The CGST Act’s sections 107 and 112 are being changed to lower the maximum pre-deposit needed for appeals’ filing. This modification could facilitate taxpayer access to the appellate system. The CGST Act is adding a new Section 128A allowing for a conditional waiver of interest and penalty for some claims related to the financial years 2017-18, 2018-19, and 2019-20. This clause might help taxpayers dealing with demands from the first years of GST application. Other important adjustments to the anti-profiteering clauses, clarifications on the handling of some insurance-related operations for GST purposes, and changes to the clauses pertaining to reverse charge mechanism issuing of invoices These GST legislative changes capture the government’s attempts to handle certain problems that have surfaced since GST’s introduction in 2017. Their goals are to cut litigation, streamline compliance, and offer clarification on a number of divisive questions.

Effects on several sectors

The suggested adjustments in GST and customs taxes are probably going to have major effects in many different spheres of Indian economy. Let’s investigate several important sectors’ possible ramifications:

Mobile phone sector and electronics

A major change that could change the dynamics of India’s mobile phone business is the lowering in customs duty on mobile phones and their components from 20% to 15%. Both domestic producers and imports will probably gain from this decrease, which could help to bring consumer costs down. Still, the effect on home industry calls for careful thought. On one hand, the lower duty could make imported phones more competitive, therefore perhaps undermining the expansion of home industry advocated by the “Make in India” program. Conversely, the lowering of responsibilities on components like PCBAs and chargers could help domestic producers save input costs, so somewhat offseting the rising import-based competitiveness. The government’s choice to raise the tariff on PCBAs for particular telecom equipment points to a complex strategy maybe meant to safeguard some areas of the local electronics production chain while liberalising others. These developments can cause a rearranging of the competitive scene in India’s mobile phone market, therefore affecting both domestic and foreign participants. In view of these tariff adjustments, businesses might have to review their manufacturing and import policies.

Jewellery Industry and Precious Metals

The jewellery business and allied sectors are probably going to be affected quite broadly by the significant drop in responsibilities on valuable metals as gold, silver, and platinum. Especially notable is the change in total duty on gold bars from 15% to 6%. This measure could result in higher gold legal imports, so lowering smuggling and perhaps bringing more transactions into the official economy. Lower gold prices should boost demand in the jewellery business, particularly in view of India’s cultural predilection for gold jewellery. Still, it’s important to take domestic gold miners’ and refiners’ influence under account. The economics of domestic gold refining activities may suffer from the lowered tariff differential between refined gold and dore—unrefined gold. Beyond jewellery, the cuts in platinum taxes could help sectors including the automobile sector, where platinum finds usage in catalytic converters. This could result in manufacturing of emission control devices for cars costing less.

Exports of Textiles and Leather

Particularly for export-oriented businesses, the several tariff reductions and exemptions for the textile and leather sectors show the government’s emphasis on developing these labour-intensive sectors. Reducing tariff on inputs like genuine down filler material and extending exemptions for leather at different processing levels could help Indian exporters become more competitive on the worldwide scene. These steps may result in more value-added textile and leather product exports, therefore boosting employment generation and foreign exchange revenues. Businesses in these fields could discover fresh chances to increase the scope of existing export activities or enter higher value product lines.

Sector of Renewables Energy

Adding particular capital goods to the list of exempt products for solar cell and module production fits India’s ambitious renewable energy targets. This action could lower the expenses of building or growing solar manufacturing plants in India, hence increasing local output of solar equipment. These developments could hasten India’s shift to sustainable energy when combined with the tariff cuts on important minerals, many of which are needed for renewable energy technology. From manufacturers to project developers, companies along the solar energy value chain could gain from these legislative developments.

Pharmaceutical and Healthcare Industry

The government’s deliberate approach to ensure that important drugs are more easily available is reflected in the exemption of customs duty on several cancer treatments. Although this action immediately helps people needing these specific therapies, it also shows the government’s readiness to apply tariff policy as a weapon for healthcare affordability. While the general structure of pharmaceutical charges stays mostly unaltered, the pharmaceutical sector may have to negotiate a terrain whereby some very valuable drugs face decreased tariff protection. This can affect policies on drug price, import choices, and maybe local production of new drugs.

Section on Aquaculture and Fisheries

Strong policy emphasis on increasing the aquaculture sector is shown by the overall decrease in duties on many inputs, including feed ingredients, broodstock, and equipment. These developments could result in lower manufacturing costs, hence increasing the competitiveness of Indian aquaculture goods on the world scene. The tariff reductions on specialised inputs like artemia cysts and SPF (Specific Pathogen Free) polychaete worms point to a complex knowledge of the needs of the sector. These developments can inspire the acceptance of more sophisticated aquaculture methods, hence enhancing yields and quality. From feed producers to prawn exporters, companies engaged in the aquaculture value chain could find fresh chances for expansion and innovation resulting from these legislative reforms.

Trade and Economic Policy Implications

The suggested adjustments in the budget for 2024 show a complex attitude to economic policy and trade. One could argue that the government is lowering responsibilities on various important inputs and capital goods, therefore increasing the competitiveness of Indian manufacturing. Conversely, it is either preserving or enhancing protection for some industries, implying a selective approach to trade liberalisation. The thorough analysis and rationalising of exemption point to a direction towards a simpler, more open customs system. This may help companies save compliance expenses and increase the appeal of India to overseas investors. Particularly with relation to input tax credit and appeals, the improvements in the GST system point to an attempt to handle some of the operational difficulties that have surfaced since GST introduction. These developments might help to increase the simplicity of doing business and possibly lower litigation. Reducing responsibilities on important minerals and inputs for high-tech manufacturing fits India’s aspirations to become a significant actor in world supply chains for innovative technology. This could help India appeal more to businesses trying to spread their supply chains outside of conventional industrial centres.

Difficulties and Notes of Reference

Although the suggested adjustments have some possible advantages, they also provide difficulties for companies and legislators will have to negotiate:

Managing imports and domestic manufacturing: Although consumers would benefit from lower taxes on completed goods like mobile phones, domestic producers may find their business challenged. It will be imperative to find the proper mix between guaranteeing competitive price and supporting local manufacture.

Revenue consequences

The notable cuts in taxes on valuable goods like gold can have a big impact on government income. One has to give great thought on how this gap will be controlled.

The many changes to GST laws and customs processes will call for major efforts in terms of system update, human training, and guaranteeing compliance. To fully enjoy the advantages of these developments, both companies and the government will have to make investments in seamless execution. Global trade relations are undergoing major flux at the time India’s tariff structure is changing. Especially in light of conversations about vital minerals and high-tech manufacturing, how these developments position India in both present and future trade negotiations will be crucial to track. Although the budget helps many different industries, it could also present problems for others. The lower tariff disparity between refined gold and dore, for example, could cause local gold refiners more competition.

Final Thought

The customs and GST changes suggested in the Indian Budget for 2024 show a whole attempt to adjust the trade and tax policies of the nation. These developments show a balancing act between advancing home production, improving export competitiveness, streamlining the tax code, and attending to industry-specific needs. Reducing obligations on important minerals and inputs for high-tech manufacturing fits world trends and might help India become a more major actor in supply chains for advanced technologies. The focused assistance for sectors including leather, textiles, and aquaculture shows a sophisticated strategy for advancing labour-intensive sectors with export potential. Particularly those pertaining to input tax credit and appeals, the GST changes show a sensitivity to the difficulties companies experience since the new tax system was adopted. These developments might help India’s business environment be more easy and help to lower litigation. Still, the consequences of these developments will have to be under strict observation. Especially in industries like electronics where tariffs on completed goods have been lowered, the effects on domestic manufacturing will be very important to notice. Likewise, the income consequences of notable duty cuts on valuable goods like gold will need careful control. These policy measures help India to maybe gain from changing supply chains and new technologies as it negotiates a progressively complicated global trade environment. To fully realise the possibilities of these changes, though, effective execution and adaptability to changing domestic and global economic conditions will be absolutely vital.