Budget 2026 in Depth: India Proposes Changes to Place‑of‑Supply Rules for Intermediaries and Moves to Rationalize Customs Duties

1. The revision of place‑of‑supply (PoS) rules for intermediaries under GST, and
2. A broad, systemic rationalization of customs duties, including tariff restructuring and the migration of exemption‑based rates into the Customs Tariff Act.

This analysis synthesizes the newly published Finance Bill 2026 proposals and supporting communications from the Central Board of Indirect Taxes & Customs (CBIC).

1. Major GST Change: Place‑of‑Supply Rules for Intermediaries

The CBIC communiqué accompanying Budget 2026 confirms that the Finance Bill proposes changes to the GST place‑of‑supply rule for intermediary services. Although the exact statutory wording isn’t reproduced in the communication, the budget highlights clearly emphasize the policy intent:

• Amendments are proposed in GST to change the place‑of‑supply rule for intermediary services, as part of a broader package of reforms including simplification of post‑sale discount treatment, expanding provisional refunds, removing export refund thresholds, and strengthening advance ruling mechanisms. [taxguru.in]

Implications for Multinational Service Hubs

Historically, India’s GST regime taxed intermediary services based on an origin‑based PoS rule, often leading to taxability in India even when services were provided to foreign clients. A shift in PoS rules could:

• Align treatment with global norms, possibly moving toward a consumption‑based standard.
• Reduce GST leakage and disputes involving BPOs, sourcing support, and cross‑border facilitation services.
• Improve export competitiveness for Indian service intermediaries and global capability centers.
• Enhance clarity, assisting both taxpayers and tax authorities in interpretation and compliance.

The CBIC’s note frames these amendments as part of its “simplification and certainty” agenda, which has been a recurring theme since 2025 reforms in GST procedure. [taxguru.in]

2. Customs Duty Rationalization: A Central Pillar of Budget 2026

Budget 2026 places heavy emphasis on tariff rationalisation, driven by India’s long‑term industrial strategy and the need to reduce legacy complexity, exemptions, and classification disputes.

2.1 Incorporation of Exemption‑Based Rates into the Tariff Schedule

The Budget proposes that many Basic Customs Duty (BCD) rates historically granted through exemption notifications will be moved into the First Schedule to the Customs Tariff Act, effective 1 May 2026. Importantly:

• Effective duty rates will remain unchanged, but compliance will become easier.
• Conditional/unconditional exemptions have been reviewed: many extended to 31 March 2028, some allowed to lapse on 31 March 2026, and redundant entries removed. [taxguru.in]

This move aims to remove the administrative complexity of tracking multiple notifications to determine applicable tariff rates.

2.2 Tariff Restructuring and Slab Reduction

Separately, reporting from early January 2026 indicates that the government is preparing a major overhaul of customs duty slabs, reducing the number of slabs from eight to five or six. This is aimed at:

• Simplifying the customs duty framework,
• Addressing classification disputes (which account for tens of thousands of pending cases),
• Resolving inverted duty structures that distort manufacturing incentives, and
• Integrating customs with a restructured GST ecosystem. [timesofind…atimes.com]

This rationalisation also supports India’s broader efforts to modernize customs and create a frictionless, paperless system aligned with global trade agreements.

2.3 Selective Rate Changes Supporting Strategic Sectors

The CBIC letter highlights targeted changes—withdrawal of certain concessions, and extension of incentives for manufacturing, exports, renewable energy, semiconductors, medical devices, electric mobility, and aircraft MRO activities. It also mentions revised specific duties for consumer goods such as umbrellas. [taxguru.in]

These adjustments are part of India’s “Atmanirbhar Bharat” (self‑reliance) manufacturing push.

2.4 Customs Act Amendments

Amendments to the Customs Act include:

• Expanded jurisdiction beyond territorial waters for Indian fishing vessels,
• Simplification of warehouse transfers,
• Clear rules on advance ruling validity, and
• Monthly deferred duty payment and new Baggage Rules 2026 to replace the prior 2016 framework. [taxguru.in]

3. How These Changes Fit Into the Broader Budget 2026 Narrative

Budget 2026 continues the government’s structural reform momentum:

• GST changes—including the place‑of‑supply reform—are part of a drive to modernize indirect tax administration and remove friction for exporters and service providers.
• Customs reforms target predictability, ease of doing business, and strategic alignment with industrial policy goals.

Together, these measures aim to create a more integrated tax regime, reduce litigation, and support India’s export‑led and manufacturing‑driven growth model, consistent with the budget’s overarching focus on productivity, competitiveness, and long‑term investment. [thehindubu…ssline.com], [investindia.gov.in]

Conclusion

India’s Budget 2026 introduces significant, system‑level changes in indirect taxation. The revision of intermediary place‑of‑supply rules has the potential to resolve long‑standing GST interpretational disputes and promote service exports. Meanwhile, the customs duty rationalization programme—including tariff consolidation, slab reduction, and procedural modernization—marks one of the most ambitious customs overhauls in recent years.

These reforms collectively move India toward a more predictable, transparent, and globally aligned indirect tax framework that supports both domestic industry and international investors.