What is the Meaning of Customs Duty in India and its Types
Customs Duty is a kind of indirect tax that is imposed by the respective government on the imports and exports of goods. Companies that are into the export-import business need to abide by the customs regulations and pay the customs duty as levied by the government. In simple terms, it is a kind of fees that are levied 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 goods 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 main purpose of customs duty is to raise revenue, safeguard domestic business and industries from predatory competitors of other countries. Moreover, it helps reduce fraudulent activities and circulation of black money. Typically, customs duty is levied according to the weight and dimensions of the goods, the origin and destination, and so on.
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 organizations. Customs duty in India falls under the Customs Act 1962 and Customs Tariff Act of 1975. Usually, the goods that are imported to the country are charged customs duty along with educational cess. For industrial goods, the rate has been slashed to 15%. The customs duty is evaluated on the value of the transaction 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 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
To put it simply, 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 the 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.
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 same items as per Rule 4.
- Comparative Value Method to calculate the transaction value of 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.