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Customs Duty refers to the tax that is imposed on the transportation of goods across international borders. It is levied by the government on the import and export of goods. Companies that are in the export-import business need to abide by these regulations and pay customs duties as required. Customs duty is the fee collected by authorities for moving goods and services to and from that country. The tax levied for the import of products is referred to as import duty, while the tax levied on the exported goods is known as export duty.
The primary purpose of customs duty is to raise revenue and safeguard the domestic business, jobs, the environment, industries, etc., from competitors in other countries. Moreover, it helps reduce fraudulent activities and the circulation of black money. In this article, you will learn all about customs duty in India, including its various types, the basis on which it is calculated, its structure, the procedure to pay it, and more.
Customs duty in India is calculated based on various factors such as:
Moreover, if you are bringing a good for the first time in India, you must declare it as per the customs rule.
India has a well-developed taxation structure. The tax system in India is a three-tier system divided between the central, state, and local governments. Customs duty in India falls under the Customs Act of 1962 and the Customs Tariff Act of 1975.
Since the implementation of India’s new taxation system, GST, integrated goods, and value-added service tax (IGST) have been charged on the value of any imported goods. Under IGST, all products and services are taxed under four basic slabs: 5%, 12%, 18%, and 28%.
Furthermore, the office of the Director-General of Foreign Trade validates the registration of all importers before they engage in any import and export activities.
Usually, the goods imported to the country are charged customs duty and educational cess. For industrial products, the rate has been slashed to 15%. The customs duty is evaluated on the value of the transaction of goods.
The basic structure of import and export tariffs in India includes:
The additional duty is applied to all imports except for wine, spirits, and alcoholic beverages. Furthermore, the special additional duty is calculated on top of the basic and additional duties. 2% of cess is charged on most goods.
In the latest budget speech, the Finance Minister announced a few changes concerning customs duty in India. The following proposals have been made:
Customs duties are levied on almost all goods that are imported into the country. However, export duties are levied on a few items, as mentioned in the Second Schedule. Customs duties are not levied on life-saving drugs, fertilizers, and food grains. Customs duties are divided into different taxes, such as:
This is levied on imported items under Section 12 of the Customs Act, 1962. The tax rate is levied as per the First Schedule to Customs Tariff Act, 1975.
Additional Customs Duty, also known as Special Countervailing Duty (CVD), is levied on goods stated under Section 3 of the Customs Tariff Act, 1975. The tax rate is similar to the Central Excise Duty charged on goods produced within India. However, Additional Customs Duty is not subsumed under the Goods and Services Tax (GST) regime and remains in effect for certain goods to protect domestic producers from unfair competition from imports.
This is levied for the purpose of protecting indigenous businesses and domestic products against overseas imports. The rate of Protective Duty is determined by the Tariff Commission and is based on the difference between the landed cost of the imported goods and the price of the domestically produced goods.
This is charged at 2%, with an additional higher education cess of 1%, as included in the customs duty, bringing the total Education Cess to 3%.
This is levied if a particular product being imported is below the fair market price. It is done to prevent country’s local industries.
This is levied if the customs authorities feel that the exports of a particular good can damage the country’s economy. The rate of Safeguard Duty is determined by the Tariff Commission and is based on the difference between the landed cost of the imported goods and the price of the domestically produced goods.
The customs duties are usually calculated on an ad valorem basis, i.e., on the value of the goods. The value of the goods is calculated according to the regulations stated under Rule 3(i) of the Customs Valuation Rules, 2007.
You can also make use of the customs duty calculator available on the CBEC website. As part of the computerised and electronic service drive in 2009, India started a web-based system known as ICEGATE (Indians Customs Electronic Commerce/Electronic Data Interchange Gateway). It calculates duty rates, import-export goods declaration, shipping bills, electronic payment, and verification of import and export licenses.
The Indian classification of the Customs Duty is based on the 6-digit Harmonized Commodity Description (HS) and Coding System.
The IGST applicable on all imports and exports is charged on the value of the goods along with the primary customs duty. The structure is as follows:
Value of Imported Goods + Basics Customs Duty + Social Welfare Surcharge = Value based on which IGST is calculated
In case there is confusion regarding the common valuation factors, the following factors are considered as per exception:
The Central Board of Excise and Customs under the Ministry of Finance manages the customs duty process in the country. International trade yields huge returns if conducted correctly. Whatever you plan on selling, you must choose an appropriate logistics partner that can help you ship hassle-free. With ShiprocketX, you can deliver your products timely and grow your business to 220+ destinations across the globe.
Customs duty can be paid online by following the steps given below:
| Item | Tariff Code (HSN) | Basic Customs Duty (From) | Basic Customs Duty (To) |
|---|---|---|---|
| Air conditioners | 8415 | 10% | 20% |
| Aviation turbine fuel | 2710 19 20 | 0% | 5% |
| Bath, sink, shower bath, wash basin (plastic) | 3922 | 10% | 15% |
| Coloured gemstones (cut & polished) | 71 | 5% | 7.50% |
| Compressors (refrigerators & air conditioners) | 8414 30 00/8414 80 11 | 7.50% | 10% |
| Diamonds (broken, half-cut, semi-processed) | 71 | 5% | 7.50% |
| Diamonds (lab-grown) | 71 | 5% | 7.50% |
| Footwear | 6401 to 6405 | 20% | 25% |
| Household refrigerators | 8418 | 10% | 20% |
| Jewellery articles & parts (metal clad with precious metal or precious metal) | 7113 | 15% | 20% |
| Miscellaneous plastic articles (furniture fittings, etc.) | 3926 | 10% | 15% |
| Plastic articles for packing & conveyance (bottles, containers, etc.) | 3923 | 10% | 15% |
| Radial car tyres | 4011 10 10 | 10% | 15% |
| Silversmith/goldsmith wares & parts (metal clad with precious metal or precious metal) | 7114 | 15% | 20% |
| Tableware, household plastic items, kitchenware | 3924 | 10% | 15% |
| Trunks, briefcases, suitcases, travel bags, etc. | 4202 | 10% | 15% |
| Speakers | 8518 29 100 | 10% | 15% |
| Washing machines (less than 10kg) | 8450 | 10% | 20% |
Customs duty in India plays a vital role in regulating the country’s trade by imposing taxes on imported and exported goods. Understanding customs duty is crucial for anyone involved in international trade. Different types of customs duty in India include basic customs duty, additional customs duty, protective duty and anti-dumping duty among others. It ensures that domestic industries are protected and that foreign goods are fairly taxed. The duty is calculated based on various factors, including the value of the goods, their classification, and the applicable duty rates. You can calculate it by applying the aforementioned formula. It is equally important to stay informed about the payment procedures and compliance requirements to ensure smooth clearance and hassle free trade operations.
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Its very useful thank you