(INDIA) — The key distinction for taxpayers is simple: tariffs are paid at the border and usually become part of your cost of goods, while income taxes are paid on profit and follow IRS residency rules for tax year 2026 (returns filed in 2027).
Two tariff moves early in 2026 are creating real bookkeeping and cash-flow issues for importers and cross-border families. First, the U.S. removed an additional 25% duty on select Indian goods effective February 7, 2026, at 12:01 a.m. EST, replacing it with an 18% reciprocal tariff on specified products. The change followed an Executive Order signed February 6, 2026, and a U.S.-India joint statement. Second, Mexico increased MFN duties up to 50% across 1,463 tariff codes effective January 1, 2026, while keeping preferential rates for USMCA and other FTA partners.
Below is what immigrants, visa holders, and small businesses should know so they report costs correctly on U.S. tax returns and avoid common errors.
Side-by-side comparison: what changed, where, and who pays
| Category | U.S.–India change (effective Feb. 7, 2026) | Mexico MFN change (effective Jan. 1, 2026) |
|---|---|---|
| What changed | Additional 25% duty removed on select Indian goods; replaced by 18% reciprocal tariff on specified goods | MFN import duties raised up to 50% on 1,463 tariff codes |
| Legal trigger | Removal followed an Executive Order signed Feb. 6, 2026 and a joint statement | Decree published Dec. 29, 2025 amending Mexico’s General Import and Export Duties Law (GIETL) |
| Who is targeted | Imports of covered goods from India | Imports from non-FTA countries (often cited: China), while FTA partners keep preferential rates |
| Examples of affected sectors | Textiles, apparel, leather, footwear, plastics, rubber, organic chemicals, home décor, artisanal goods, some machinery | Cosmetics 10%–25%, plastics 15%–25%, paper 5%–35%, apparel/footwear 25%–35%, steel 25%–35%, aluminum 0%–25%, autos 20%–50%, auto parts 0%–25% |
| What did not change | Section 232 tariffs (steel, aluminum, autos) remain in place | No change for qualifying USMCA/FTA goods; maquiladoras/IMMEX may still owe partial duties on non-FTA inputs |
| Practical cash impact | Potential refund processing for duties paid on/after Feb. 7, 2026 for covered entries | Higher landed costs across many codes; courier shipments up to $2,500 face a 33.5% global rate (U.S./Canada exempt under USMCA) |
| U.S. tax reporting impact | Lower duty can reduce inventory costs and increase gross profit, or reduce COGS depending on accounting | Higher duty can increase inventory costs and reduce gross profit, if capitalized into inventory/COGS |
Section 1: Overview of U.S.–India tariff changes (what happened on Feb. 7)
For many importers, the headline is the U.S. removal of an extra 25% duty on select Indian goods. The change took effect February 7, 2026, at 12:01 a.m. EST. It followed an Executive Order dated February 6, 2026, plus a bilateral statement.
Instead of that add-on duty, the U.S. is applying a new 18% reciprocal tariff rate on specified Indian goods. Businesses should confirm tariff classification and entry dates with their customs broker.
Section 2: U.S.–India details that matter for refunds and tax books
The earlier extra duty traces back to Executive Order 14329 (August 27, 2025), linked to India’s Russian oil imports. The 2026 removal is not retroactive to all past entries. The effective date is tied to customs entry timing.
The removal applies to products entered or withdrawn from warehouse on or after February 7, 2026. U.S. Customs and Border Protection (CBP) is expected to process refunds for duties paid after that date on covered goods.
Two points are easy to miss:
- Section 232 tariffs remain unchanged. If you import steel, aluminum, or certain autos, do not assume this Executive Order removed those duties.
- The interim framework includes broader trade commitments and contingencies. Businesses should watch for additional changes, especially if conditions change.
Tax impact for U.S. filers (2026 return filed in 2027): customs duties are generally part of the landed cost of goods. If you resell the items, those costs usually flow into inventory and cost of goods sold (COGS), not an immediate “tax” line item.
- Sole proprietors often report COGS on Schedule C (Form 1040), Part III.
- Corporations often report COGS on Form 1125-A.
The IRS mechanics depend on your accounting method and inventory rules. For forms and instructions, use the IRS forms library at IRS forms and publications.
⚠️ Warning: Don’t deduct “tariffs” twice. If duties are included in inventory or COGS, deducting them again as an expense can overstate deductions.
Section 3: Mexico’s MFN duties increase (why it matters even to U.S.-based taxpayers)
Mexico’s action is broader in scope. Effective January 1, 2026, Mexico raised MFN duties up to 50% on 1,463 tariff codes. The decree was published December 29, 2025.
The rate increases vary by sector. Examples include:
- Cosmetics: 10% to 25%
- Apparel/footwear: 25% to 35%
- Automobiles: 20% to 50%
The key dividing line is origin status. These hikes target imports from non-FTA countries, while USMCA and other FTA partners keep preferential rates when goods qualify.
For cross-border sellers, one operational detail stands out: courier shipments up to $2,500 face a global rate rising to 33.5%, with the U.S. and Canada exempt under USMCA.
Section 4: USMCA/FTA rules and the “lesser of the two” issue for maquiladoras
Mexico’s decree generally does not change duties for qualifying USMCA/FTA goods. The work is in proving qualification, including rules of origin and documentation.
Manufacturers using maquiladora/IMMEX programs need extra care. Under the “lesser of the two” concept described in the policy discussion, some non-FTA inputs can still create partial duty costs, even when finished goods move under preferential treatment.
From a U.S. tax angle, those Mexican duties can show up as higher component costs, transfer pricing pressure, and different margins in related-party transactions. That can affect U.S. taxable income for 2026.
Section 5: Why these policy moves happened (and why taxpayers should care)
Mexico framed its MFN increases as part of a national development strategy to strengthen domestic industry and reduce supply chain vulnerability. The targeting of non-FTA imports, especially those associated with China, fits that aim.
The U.S.–India shift has a different policy driver. The removal of the extra 25% duty followed commitments described in the bilateral statement and the new Executive Order. The rate was replaced with an 18% reciprocal tariff on specified goods, not a return to “zero tariff.”
For taxpayers, the “why” matters less than the paperwork trail. Tariff changes can alter:
- landed cost and pricing,
- year-end inventory values,
- and profit timing for tax year 2026.
Section 6: Practical steps for 2026 U.S. tax filing (filed in 2027)
1) Match duties to the correct shipment date
For U.S.–India covered goods, the effective date turns on whether products were entered or withdrawn from warehouse on/after Feb. 7, 2026. Keep entry summaries, broker invoices, and refund paperwork.
2) Don’t confuse tariffs with income taxes or credits
Customs duties are not a “foreign income tax.” They generally do not create a U.S. foreign tax credit. The foreign tax credit rules are discussed in IRS publications and international guidance at International tax for individuals.
3) Put the cost in the right place on the return
If you are reselling goods, tariffs typically flow into inventory/COGS. If you are buying for personal use, tariffs are usually a personal cost, not deductible.
4) Immigrant and visa-holder reminder: U.S. residency drives reporting
Your U.S. tax filing status for 2026 is based on the Green Card Test or the Substantial Presence Test. See IRS Publication 519 (U.S. Tax Guide for Aliens) at IRS Publication 519 (PDF).
This matters because U.S. tax residents generally report worldwide income, including foreign business income tied to importing or reselling.
📅 Deadline Alert: For tax year 2026, Form 1040 is generally due April 15, 2027. An extension typically moves the filing deadline to October 15, 2027, but does not extend time to pay.
Common mistakes (and how to avoid them)
- Mistake 1: Recording a CBP refund in the wrong year. If a duty refund is received in 2026, 2027, or later, you must apply proper accounting treatment. Tie it back to inventory/COGS where applicable.
- Mistake 2: Treating duty changes like a treaty benefit. Tariff rates are not income tax treaty rates. Tax treaties are covered in IRS Publication 901, but tariffs are customs law.
- Mistake 3: Assuming USMCA always applies. Preferential rates depend on qualification and documentation. Non-qualifying goods can face MFN duties.
- Mistake 4: Overlooking Section 232 tariffs. The U.S.–India Executive Order change did not remove Section 232 tariffs on steel, aluminum, and certain autos.
- Mistake 5: Mixing personal and business imports. If you operate a side business, separate personal purchases from resale inventory. Keep separate accounts and receipts.
You are most likely in the U.S.–India bucket if…
- you import covered Indian-origin goods after Feb. 7, 2026, and
- you need to track the shift from an extra 25% duty to an 18% reciprocal tariff, and
- you may be due a CBP duty refund for eligible entries.
You are most likely in the Mexico MFN bucket if…
- your supply chain includes Mexico imports subject to MFN duties (non-FTA origin), and
- you need to validate USMCA qualification or manage higher costs on non-FTA inputs, and
- you ship goods by courier where the $2,500 threshold and 33.5% global rate can change landed costs.
Action items for 2026 recordkeeping: save customs entry dates, confirm tariff codes with your broker, reconcile duty refunds to inventory/COGS, and confirm your U.S. residency status using Publication 519 before you file.
⚠️ Disclaimer: This article is for informational purposes only and does not constitute tax, legal, or financial advice. Tax situations vary based on individual circumstances. Consult a qualified tax professional or CPA for guidance specific to your situation.
