Budget 2026: AEO privileges rise, obligations deepen, and risks trail behind

Abstract

Budget 2026 has laid the foundation to shift from an enforcement heavy regime to trust based assessments for imports and export to and from India. One of the biggest beneficiaries of these changes are those operating in the Authorized Economic Operation (‘AEO’) ecosystem. Some of the key changes are re‑characterization of ‘penalty’ as a ‘charge’ in voluntary‑compliance closures under Section 28(6) of the Customs Act[1], the extension of the deferred payment window from 15 to 30 days for AEOs and others, automation measures such as Auto Goods Registration and Auto Out‑of‑Charge on import, cross‑agency recognition of AEO by Participating Government Agencies (PGAs), and export‑side proposed all India rollout of Auto registration/Auto Let Export Order (LEO).  These trade facilitation measures are sign of Digital India and one of the steps towards Viksit Bharat by 2047. 

The authors herein explain why these steps de‑risk bona fide disputes for AEOs, compress border timelines, and nudge non‑AEO firms to enroll, while preserving deterrence in fraud cases and building toward a single‑platform, risk‑based border control and regulation while pushing the thresholds of global world.

1.Introduction to the AEO Scheme
 

The AEO construct is the global vocabulary of trust in international trade. Article 7.7 of the World Trade Organization’s Trade Facilitation Agreement (TFA) enables creation of class of ‘authorized operators’ [2] who can be conferred the various facilitation benefits. .[3] In parallel, the WCO SAFE Framework (Pillar II) provides design blueprints and validation mechanics for AEO programs.[4]
 

India’s AEO programme implements these norms through CBIC Circular 33/2016‑Customs (as amended by Circular 26/2018‑Customs), offering three tiers (Tier 1, Tier 2, and Tier 3) of progressively deeper facilitation, where AEO T3 is the highest level of accreditation. As per the National Time Release Study, the bills of entry by AEO report significantly lower average release time (ART) of 45% (approx.) when compared to ART for all bills of entry filed at customs ports.[5]
 

2. The pre‑Budget pain point: AEO vulnerability and Budget 2026
 

While AEO enjoys fewer inspections, rapid clearances of goods and reduced guarantees, they have faced higher risks of demand and penalties arising out of bona fide interpretation issues. Typically, such demands are raised by the Department invoking fraud, willful misstatement and suppression with an intent to evade duty under Sections 28(4) with equal amount of penalties on the premise that AEOs mis-used their status. This is because as per Para 5.7 of Circular 33/2016, the AEO status can be revoked if ‘a show cause notice has been issued to them involving fraud, forgery, outright smuggling, clandestine removal of excisable goods or cases […].’[6] Hence, once a notice alleging the ingredients of ‘fraud’ is issued under Section 28(4) or penalty is proposed, the Customs Department treated it as a ‘fraud’ against the Government. Thereby, posing a major threat to the AEO status at the time of renewals.[7].
 

a) Budget 2026: A half-hearted move in the right direction. 
 

Budget 2026 addresses this fear head‑on but only partially. Where an importer/exporter voluntarily concludes a Section 28(4) demand by paying duty and interest along with 15% penalty, Section 28(6) now deems that amount to be a ‘charge for non‑payment of duty’ in voluntary‑compliance cases, rather than a ‘penalty’. The quantum and the closure mechanism remain unchanged; what changes is the legal character of amount imposed as a ‘penalty’.  This removes the punitive label associated with ‘penalty’ and its reputational and governance spillovers that is particularly relevant for AEO entities and their continued status. 
 

However, honest operators who decide to contest the demands have been left in a lurch as for them ‘penalty on account of fraud, misrepresentation and suppression’ continues till it is actually set aside by a Court (typically a tax tribunal). The ordeal of having to give an explanation at the time of renewals continues for them. Nonetheless, the progressive outlook of the Government towards industry is appreciated and we hope these gaps are plugged in future.
 

b) Deferred duty to 30 days and nudge to move towards AEO
 

Budget 2026 also complements the legal recalibration with a cash‑flow nudge. The Deferred Payment of Import Duty Rules, 2016 are amended to extend the deferral cycle from 15 to 30 days. This aligns with the trade requests for monthly accounting and improving working‑capital efficiency. Alongside, CBIC has notified a new class of ‘Eligible Manufacturer Importers’ (EMIs), allowing manufacturers who are not yet AEO‑certified to access deferred payment up to 31 March 2028. For AEO‑T2/T3 entities, the 30‑day cycle strengthens an existing benefit set. For EMIs, it is an invitation to professionalize compliance and graduate into AEO within the transition window. 
 

c) Automation of imports and exports [Circular No. 06/2026-Cus dated 01.02.2026]
 

Two operational changes push clearances firmly into straight‑through territory. Firstly Auto Goods Registration (AGR) to register imported cargo on arrival without any web request and Auto Out-of-charge for eligible categories including AEO-T2/T3 will further reduce the Average Release Time (‘ART’) of the goods. Secondly, facility of Auto Let Export Order (LEO) is also available where there is no examination and no requirement of PGA related NOC. However, the customs officers retain an intelligence‑based ‘HOLD’ override. Together, these measures reduce touchpoints, compress dwell time, and convert AEO/EMI trust signals directly into release outcomes. 
 

d) Cross-agency facilitation 
 

Under the National Trade Facilitation Action Plan (NTFAP) 2024–27, the AEO programme that was merely seen as a Customs-only facilitation instrument has been extended to a unified government commitment to reduce logistics friction across regulatory layers. To operationalise this, Partner Government Agencies (PGAs) have been formally requested to recognize AEO status within their own risk‑management frameworks, ensuring that trusted operators receive predictable, lower‑touch regulatory treatment across the entire border ecosystem.
 

Notably, FSSAI and WCCB already extend enhanced facilitation to all AEO tiers, while CDSCO has begun recognising AEO‑T3, resulting in a measurable rise in facilitation levels for accredited entities. This multi‑agency alignment is designed to further compress ART, eliminate duplicative examinations, and make the AEO programme significantly more attractive and valuable.
 

3. Conclusion
 

While Budget 2026 aims at making an ‘AEO status’ even more lucrative, AEOs must remain vigilant about the accuracy of their declarations, maintain proper documentation and overall compliance metrics to safeguard themselves from potential repercussions during post‑clearance audits. It would be equally interesting to see how the Indian Government aligns the AEO framework with PGAs for operationalising the supply chain, which is an indispensable component for the manufacturing industry in India.
 

[The authors are Executive Partner and Principal Associate, respectively, in Customs practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]

[1] Customs Act, 1962 (‘the Customs Act’)

[2] Article 7 (7.2), WTO’s Agreement on Trade Facilitation Geneva, 27.11.2014 (WT/L/940), available at: https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=q:/WT/L/940.pdf&Open=True (last accessed on 02.02.2026)

[3] Article 7 (7.3), WTO’s Trade Facilitation Agreement, Id. 4. 

[4] Part IV: Pillar 2- Customs-to-Business, World Customs Organization’s SAFE Framework of Standards (2021).

[5] CBIC releases National Time Release Study (NTRS) 2024, PIB Delhi, available at: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2034465&reg=3&lang=2 (last accessed on 02.02.2026); NTRS 2025, available at:  https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/jun/doc2025620574401.pdf (last accessed on 02.02.2026) 

[6] Para 5.7.1 (iii), Revocation of AEO Status, Circular No. 33/2016-Cus., dated 22.07.2016

[7]Para 5.7 and Para 3.2, Circular No. 33/2016-Cus., dated 22.07.2016