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Meaning Of Customs Duty In India And Its Types

Puneet Bhalla

Associate Director - Marketing @ Shiprocket

March 15, 2021

8 min read

Planning to sell across the border, but can’t figure out what customs duties are? Don’t worry, we’ve got you covered.

Know All About Customs Duty In India

Customs Duty refers to the tax that is imposed on the transportation of goods across international borders. It is a kind of indirect tax 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. Put differently, customs duty is a kind of fee collected by authorities for the movement of 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 goods exported to some other country is known as export duty.

The primary purpose of customs duty is to raise revenue and safeguard domestic business, jobs, environment, industries, etc., from predatory competitors of other countries. Moreover, it helps reduce fraudulent activities and the circulation of black money.

On What Factors Are Customs Duties Calculated?

Customs duty is calculated based on various factors such as:

  • The place of acquisition of goods.
  • The place where the goods were made.
  • The material of goods.
  • Weight and dimensions of the goods etc.

Moreover, if you are bringing a good for the first time in India, you must declare it as per the customs rule.

Customs Duty In India

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 percent, 12 percent, 18 percent, and 28 percent.

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.

Structure Of Customs Duty In India

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:

  • Basics Customs Duty
  • Additional Duty
  • Special Additional Duty
  • Education Assessment or Cess
  • Other State-Level Taxes

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. Apart from these, the percentage of cess charged is 2% on most goods.

Customs Duty Update in Union Budget 2023

Finance Minister Nirmala Sitharaman announced the Union Budget of 2023 on 1 February 2023. In the latest budget speech, the Finance Minister announced a few changes concerning customs duty. The following proposals have been made:

  • The elimination of outdated exemptions through the rationalisation of the structure of customs duty.
  • Increase in the customs duty charged on precious metals like gold and silver. The rate has been increased from 7.5% and 6.1% to the current rate of 10% for both metals. This was done in an effort to reduce the import of gold and silver and to encourage domestic consumption of these metals.

Types of Customs Duties in India

Customs duties are levied on almost all goods that are imported into the country. On the other hand, 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:

Basic Customs Duty

This is levied on imported items that are part of Section 12 of the Customs Act, of 1962. The tax rate is levied as per the First Schedule to Customs Tariff Act, of 1975.

Additional Customs Duty

Additional Customs Duty also known as Special Countervailing Duty (CVD) is levied on goods that are 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.

Protective Duty

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.

Education Cess

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%.

Anti-Dumping Duty

This is levied if a particular good being imported is below the fair market price. It is done to prevent the local industries of the country. 

Safeguard Duty

This is levied if the customs authorities feel that the exports of a particular good can damage the economy of the country. 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.

How To Calculate Customs Duty?

The customs duties are usually calculated on an ad valorem basis, i.e. on the value of the goods. The value of 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 that is 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. ICEGATE is the abbreviation of Indians Customs Electronic Commerce/Electronic Data Interchange Gateway. It provides a platform for the calculation of 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 Harmonized Commodity Description (HS) and Coding System. The HS codes are of 6 digits.

The IGST that applies to all imports and exports is charged on the value of the good along with the primary customs duty on the good. 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 taken into consideration as per exception:

  • Comparative Value Method to calculate the transaction value of the same items as per Rule 4.
  • Comparative Value Method to calculate the transaction value of the same items as per Rule 5.
  • Deductive Value Method to calculate the sale price of an item in an importing country as per Rule 7.
  • Computed Value Method that is used as per the fabrication materials and profit as per Rule 8.
  • The fallback Method is used to calculate goods with higher flexibility as per Rule 9.

The Central Board of Excise and Customs under the Ministry of Finance manages the customs duty process in the country. International trade has huge returns if done in the right way. Whatever you plan on selling, you must choose an appropriate logistics partner that can help you ship hassle-free. With Shiprocket, you can deliver your products on time and grow your business to 220+ countries across the globe.

How To Pay Customs Duty Online

Custom duty can be paid online by following the steps given below:

  • Access the ICEGATE e-payment portal
  • Enter the Import/Export Code or login credential supplied by ICEGATE
  • Click on e-payment
  • You can now see all the unpaid challans in your name
  • Select the challan you want to pay and select a bank or payment method
  • You will be redirected to the particular bank’s payment gateway
  • Make the payment
  • You will be redirected to the ICEGATE portal. Click print to save payment copy

Latest Rates For Customs Duty (BCD) In India [2024]

ItemTariff Code (HSN)Basic Customs Duty (From)Basic Customs Duty (To)
Air conditioners841510%20%
Aviation turbine fuel2710 19 200%5%
Bath, sink, shower bath, wash basin (plastic)392210%15%
Colored gemstones (cut & polished)715%7.50%
Compressors (refrigerators & air conditioners)8414 30 00/8414 80 117.50%10%
Diamonds (broken, half-cut, semi-processed)715%7.50%
Diamonds (lab-grown)715%7.50%
Footwear6401 to 640520%25%
Household refrigerators841810%20%
Jewelry articles & parts (metal clad with precious metal or precious metal)711315%20%
Miscellaneous plastic articles (furniture fittings, etc.)392610%15%
Plastic articles for packing & conveyance (bottles, containers, etc.)392310%15%
Radial car tyres4011 10 1010%15%
Silversmith/goldsmith wares & parts (metal clad with precious metal or precious metal)711415%20%
Tableware, household plastic items, kitchenware392410%15%
Trunks, briefcases, suitcases, travel bags, etc.420210%15%
Speakers8518 29 10010%15%
Washing machines (less than 10kg)845010%20%

FAQs (Frequently Asked Questions) 

What is meant by Customs Duty?

Customs duty refers to the tax imposed on goods transported across international borders. In simple terms, it is the tax levied on importing and exporting goods. 

Where can I find the latest updates on Customs Duty in India?

The GoI updates the data on its website regularly, and if you want basic updates, you can visit our blog, where we keep updating the information regularly.

Can Customs hold my shipment?

Yes. If your taxes and duties are unpaid, customs has the right to retain your shipment.

Does the government offer any rebates for exports?

Yes, the government provides several rebates in customs duties for exports.

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