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Eligible manufacturer-importers to get duty deferment facility from March

February 26, 2026 6 min read Economics Polity & Governance GS Paper 3
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What Happened

  • The Central Board of Indirect Taxes and Customs (CBIC) has introduced a new Deferred Customs Duty Payment facility for a category called Eligible Manufacturer Importers (EMI), as announced in the Union Budget 2026–27.
  • Under this facility, eligible manufacturer-importers can clear imported goods from customs without paying the applicable customs duty at the time of clearance; instead, duty is paid on a monthly consolidated basis.
  • Applications for the EMI scheme opened from March 1, 2026 on the AEO India portal; the facility itself becomes operational from April 1, 2026 and will remain in force until March 31, 2028.
  • The scheme extends to manufacturer-importers the same duty deferment benefit previously available only to Authorised Economic Operators (AEOs) — large, pre-approved, trusted traders.
  • Eligibility is based on Customs and GST compliance record, annual turnover, financial standing, and past import track record.
  • Existing AEO-T1 entities, including MSMEs, that fulfil the criteria are also eligible to participate.
  • During the scheme's two-year validity, approved EMIs are expected to progressively upgrade to AEO-T2 or AEO-T3 status, gaining access to enhanced trade facilitation over time.

Static Topic Bridges

Authorised Economic Operator (AEO) Programme

The Authorised Economic Operator (AEO) programme is a World Customs Organization (WCO)-endorsed trade facilitation initiative, implemented in India by CBIC under the Customs Act, 1962. It confers trusted trader status on importers and exporters who demonstrate high levels of regulatory compliance, financial solvency, and supply-chain security. India's AEO programme has three tiers — AEO-T1, AEO-T2, and AEO-T3 — with progressively higher compliance requirements and correspondingly greater customs facilitation benefits.

  • Benefits for AEO status include: deferred customs duty payment, direct port delivery, priority processing of customs documents, reduced examination rates for consignments, and dedicated helpdesks.
  • AEO-T1 (basic tier): available to smaller traders/MSMEs; requires basic compliance certification and financial standing.
  • AEO-T2 and T3: deeper compliance, audit, and security standards; T3 confers mutual recognition with foreign customs administrations (India has AEO Mutual Recognition Arrangements with the EU, USA, South Korea, Hong Kong, Taiwan, and others).
  • The duty deferment facility allows consolidated monthly payment under the Deferred Payment of Import Duty Rules, 2016, instead of transaction-by-transaction payment at the time of each clearance.

Connection to this news: The EMI scheme effectively creates an "on-ramp" to the AEO programme — manufacturers who qualify for duty deferment without going through the full AEO certification process are incentivised to upgrade progressively to formal AEO status, deepening the pool of compliant, facilitated traders.

Customs Procedures and Trade Facilitation in India

Customs duty in India is levied under the Customs Act, 1962 and the Customs Tariff Act, 1975. The basic customs duty (BCD) is the primary instrument of tariff policy; in addition, integrated GST (IGST), social welfare surcharge, and other levies are collected at the port of import. Normally, customs duty must be paid before or at the time of clearance, tying up working capital for importers. Procedures such as advance rulings (certainty on duty classification), duty drawback (refund of duties on re-exported goods), and export promotion schemes (like Export Oriented Units / EOUs) provide various forms of duty relief.

  • Duty drawback is available under Section 74 (re-export of imported goods) and Section 75 (inputs used in exported products) of the Customs Act.
  • Export Oriented Units (EOUs) and Special Economic Zone (SEZ) units already enjoy duty exemption on imports — a long-standing facilitation for export-linked manufacturers.
  • The IGST refund mechanism under GST replaced the earlier Central Excise duty drawback for domestic manufacturers.
  • For manufacturer-importers outside EOUs/SEZs, paying duty upfront on raw materials and capital goods before receiving payment from customers creates a cash flow squeeze — a persistent complaint especially for MSMEs.
  • CBIC's Single Window Interface for Facilitation of Trade (SWIFT) enables simultaneous electronic processing of import documentation across multiple regulatory agencies.

Connection to this news: The EMI duty deferment scheme addresses the working capital lock-up problem for manufacturers who import inputs. By allowing duty payment in arrears on a monthly basis, it aligns the duty outflow more closely with the manufacturer's revenue cycle.

Make in India, PLI, and Manufacturing Incentives

The Union Budget 2026–27's extension of duty deferment to manufacturer-importers fits within a broader industrial policy strategy aimed at boosting domestic manufacturing competitiveness. The Production Linked Incentive (PLI) scheme, announced across 14 sectors, provides cash incentives to manufacturers who achieve incremental production above a threshold. Combined with customs duty reductions on inputs for target industries, import duty hikes on finished goods (to protect domestic producers), and now the duty deferment facility, the policy architecture aims to make manufacturing in India economically rational.

  • PLI scheme total outlay: ~₹1.97 lakh crore across 14 sectors including mobile phones, pharmaceuticals, textiles, food processing, steel, and electronics.
  • The government has progressively reduced BCD on capital goods and raw materials in sectors where domestic manufacturing capacity exists, while maintaining higher duties on finished imports.
  • MSME sector accounts for approximately 30% of GDP and over 40% of total exports; cash flow constraints are a disproportionate burden on smaller manufacturers.
  • The EMI scheme's eligibility conditions — which include turnover and financial standing — may initially favour larger manufacturers; the explicit inclusion of AEO-T1 entities (accessible to MSMEs) is an attempt to widen access.
  • CBIC's move to a fully digital, paperless application process (no physical documents, no customs office visits) for EMI scheme applications aligns with the National Trade Facilitation Action Plan's digitisation goals.

Connection to this news: The duty deferment facility is a direct easing of working capital constraints for manufacturer-importers. For a sector like electronics or chemicals where imported inputs constitute a large share of cost — and where customers pay 60–90 days after delivery — the ability to defer duty payment to the month-end significantly improves cash flow management.

India's Trade Facilitation Commitments: WTO and Beyond

India is a signatory to the WTO Trade Facilitation Agreement (TFA), which entered into force in 2017, committing members to simplify and harmonise customs procedures to reduce trade costs. The TFA's Category A commitments (implemented immediately) include advance rulings, electronic submission of documentation, and single-window clearance. Category B and C commitments (phased implementation) cover more substantive reforms including deferred payment, risk management systems, and authorised operator programmes.

  • India notified its TFA implementation categories to the WTO and has progressively met its Category B commitments.
  • CBIC's ICES (Indian Customs Electronic Data Interchange System) handles electronic processing of all import/export declarations.
  • Time release studies (TRS) — mandated under TFA — measure the average time for goods clearance; India's TRS scores have improved but clearance times for sea cargo remain above the TFA benchmark in some ports.
  • The duty deferment scheme for AEOs and now EMIs directly aligns with TFA Article 7.3, which calls for separation of release of goods from final customs determination — a key trade facilitation metric.

Connection to this news: The EMI scheme advances India's WTO TFA commitments while simultaneously serving industrial policy objectives — a dual-purpose reform that reduces trade costs and strengthens the domestic manufacturing ecosystem simultaneously.

Key Facts & Data

  • Scheme name: Eligible Manufacturer Importer (EMI) Duty Deferment Scheme
  • Announced in: Union Budget 2026–27 (Finance Minister Nirmala Sitharaman)
  • Application window opens: March 1, 2026 (online, AEO India portal: aeoindia.gov.in)
  • Facility operational from: April 1, 2026; valid until March 31, 2028
  • Governing rules: Deferred Payment of Import Duty Rules, 2016; Notification No. 12/2026-Customs (NT) dated February 1, 2026
  • Eligibility: Customs and GST compliance record, turnover, financial standing, past track record
  • Existing AEO-T1 entities (including MSMEs) fulfilling conditions: also eligible
  • Payment mechanism: Monthly consolidated payment (EMI-style) instead of per-transaction duty
  • AEO programme tiers: T1 (basic) → T2 → T3 (full; mutual recognition with foreign customs)
  • India AEO Mutual Recognition partners: EU, USA, South Korea, Hong Kong, Taiwan
  • WTO Trade Facilitation Agreement: entered into force February 22, 2017
  • PLI scheme outlay: ~₹1.97 lakh crore across 14 sectors