Centre reviews customs duty relief for 118 products, eases GST on post-sale discounts

The two developments have implications for manufacturers, importers and consumer-facing businesses, although their impact will depend on how the government implements the proposed customs duty changes and how companies adapt to the revised GST requirements.

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The customs duty review covers products across strategic sectors, including electronics, renewable energy, pharmaceuticals, textiles, power infrastructure and advanced materials. The exercise is part of the government's wider objective of correcting inverted duty structures, rationalising tariffs and strengthening domestic production.

What’s behind the duty review?

Customs duty exemptions reduce the tax burden on imports of specified goods, including raw materials, components and equipment. While these concessions can support industries that depend on overseas supplies, they can also create distortions when domestic manufacturers face higher duties on inputs than finished products.

The government's review seeks to assess whether existing exemptions continue to serve their intended economic purpose, particularly as domestic manufacturing capabilities expand.

‘Timely exercise’

Karthik Iyer, partner at Indirect Tax, Tax & Regulatory Advisory at BDO India, described the exercise as timely, given its alignment with the government's objectives of tariff rationalisation, correcting inverted duty structures and promoting domestic manufacturing.

According to Iyer, exemptions remain important for sectors that continue to depend on imports. However, their phased withdrawal could be considered in segments where sufficient domestic manufacturing capacity has emerged.

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A calibrated approach will be important. Removing exemptions too quickly could increase input costs for manufacturers that still rely on imported components, potentially affecting production costs and competitiveness. Conversely, continuing concessions despite the emergence of viable domestic alternatives could weaken incentives for local manufacturing.

What should businesses watch for?

The outcome could influence import costs, sourcing decisions and investment plans across several industries. Companies will need to assess their exposure to the products under review and determine whether alternative domestic suppliers can meet their requirements in terms of cost, quality and capacity.

Iyer said industry bodies should engage proactively with the government, supported by data on investments, production capabilities and supply-chain dependencies. Such inputs would help policymakers design a tariff framework that balances localisation with competitiveness.

What changes for GST on post-sale discounts?

The GST changes concerning post-sale discounts address a different business concern: the conditions under which companies can reduce the taxable value of supplies through discounts offered after a sale.

The removal of prior-agreement and invoice-linkage conditions provides businesses with greater flexibility in structuring commercial discounts. The express recognition of credit notes for post-sale discounts is particularly relevant for industries where promotional incentives, volume-based rebates and other retrospective discounts are common.

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FMCG, pharmaceutical and retail companies could benefit from greater certainty in handling such arrangements, reducing the disconnect between commercial practices and tax compliance requirements.

Adequate documentation a must

Karthik Mani, partner and leader – Indirect Tax: South, Tax & Regulatory Advisory at BDO India, said the changes bring GST closer to the way businesses actually operate.

However, the relaxation does not eliminate the need for adequate documentation. Mani advised companies to continue maintaining invoice-wise mapping of credit notes, even though invoice linkage conditions have been relaxed.

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Such records could prove important in demonstrating the nature of discounts and substantiating the corresponding input tax credit (ITC) reversal during tax assessments and audits.

What should companies do now?

Businesses should review their discount schemes, customer contracts and enterprise resource planning systems to ensure that credit notes are appropriately documented and reconciled.

Import-dependent manufacturers, meanwhile, should evaluate their exposure to the customs duty review and engage with industry associations to communicate their supply-chain requirements.

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Together, the two developments reflect an attempt to make India's indirect tax regime more aligned with industrial policy and commercial realities. The customs duty review could reshape the economics of importing and domestic sourcing, while the GST changes offer greater flexibility in managing post-sale discounts.

For businesses, the opportunity lies in adapting early, without overlooking the documentation and compliance requirements that remain central to tax administration.