What is the Meaning of Customs Duty in India and its Types

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

Read on to know all about customs duty in India and its types.

Customs Duty refers to the tax that is imposed on the transportation of goods across international borders. It is a kind of indirect tax that is levied by the government on the imports and exports of goods. Companies that are into the export-import business need to abide by these regulations and pay the customs duty as required. Put differently, the customs duty is a kind of fees that are collected by the customs authorities for the movement of goods and services to and from that country. The tax that is levied for the import of products is referred to as import duty, while the tax levied on the goods that are exported to some other country is known as export duty.

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

On what factors is the customs duty calculated?

The customs duty is calculated based on various factors such as the following:

  • The place of acquisition of the good.
  • The place where the goods were made.
  • The material of the goods.
  • Weight and dimensions of the good 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 mainly a three-tier system which is based between the Central, State Governments and the local government organisations. Customs duty in India falls under the Customs Act 1962 and Customs Tariff Act of 1975.

Since the implementation of India’s new taxation system, GST, integrated goods and value-added service tax (IGST) is being charged on the value of any imported goods. Under IGST, all products and services are taxed under four basic slabs of 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 a Customs Duty in India

Usually, the goods that are imported to the country are charged customs duty along with educational cess. For industrial products, the rate has been slashed to 15%. The customs duty is evaluated on the value of the transaction of the goods.

The basic structure of import and export tariffs in India include:

  • 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 basics duty and additional duty. Apart from these, the percent of cess charged is 3% on most of the goods.

Types of Customs Duty 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:

1. Basic Customs Duty: This is levied on imported items that are part of Section 12 of the Customs Act, 1962. The tax rate is levied as per First Schedule to Customs Tariff Act, 1975.
2. Additional Customs Duty: It is levied on goods that are stated under Section 3 of the Customs Tariff Act, 1975. The tax rate is more or less similar to the Central Excise Duty charged on goods produced within India. This tax is subsumed under GST now.
3. Protective Duty: This is levied for the purpose of protecting indigenous businesses and domestic products against overseas imports. The rate is decided by the Tariff Commissioner.
4. Education Cess: This is charged at 2%, with an additional higher education cess 1%, as included in the customs duty.
5. Anti-dumping Duty: This is levied if a particular good is being imported is below fair market price.
6. Safeguard Duty: This is levied of the customs authorities feel that the exports of a particular good can damage the economy of the country.

How to Calculate Customs Duty

The customs duties are usually calculated on Ad valorem basis 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 the year 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, 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 the imported goods+ Basics Customs Duty + Social Welfare Surcharge = Value based on which IGST is calculated

In case there is a 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 importing country as per Rule 7.
Computed Value Method that is used as per the fabrication materials and profit as per Rule 8.
Fallback Method 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.

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