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What is customs duty? Know meaning, types, rates, and calculation of customs duty
Customs duty is the tax imposed by governments on imports and exports. Understand duty types, rates, and calculation methods in this blog.
For businesses engaged in cross-border trade, understanding customs duty is crucial for pricing, compliance, and profitability. Customs duties in India, like in many countries, are taxes levied on goods imported into or exported out of the country. These charges vary based on product type, country of origin, and applicable trade agreements.
This blog explains the different types of customs duties, their objectives, current customs duty rates, and how to calculate customs duty using official formulas and portals.
This blog explains the different types of customs duties, their objectives, current customs duty rates, and how to calculate customs duty using official formulas and portals.
What is customs duty?
Customs duty is a tax charged by the central and state governments on the import and export of goods and services across international borders. It is commonly referred to as import duty for incoming goods and export duty for outgoing goods. The main purpose of customs duty is to regulate the movement of goods and safeguard the country’s economy, employment opportunities, and environment. Customs duties also control the movement of restricted and prohibited goods between countries.
Every product has a predefined duty rate based on factors like where the goods were made, how they were sources, and what raw materials were used to manufacture them. Any product brought to India for the first time must be declared according to the customs rules.1
Every product has a predefined duty rate based on factors like where the goods were made, how they were sources, and what raw materials were used to manufacture them. Any product brought to India for the first time must be declared according to the customs rules.1
Recent updates on customs duties
Some recent updates on customs duties in India include:
Export promotion for handicrafts and leather:
The Union Budget 2025–26 introduced export-friendly tax measures, including an extended export timeline for handicrafts from six months to one year, with a possible three-month extension. It also added nine more handicraft items to the list of duty-free inputs. To support small tanners, crust leather has been exempted from the 20 percent export duty. Basic customs duty on Wet Blue leather has been removed to boost domestic value addition and employment.2
Full exemption for electronics sub-components:
To enhance Make in India efforts, the 2025 budget announced a full customs duty exemption on several sub-components used in electronic goods. This benefits exporters manufacturing or assembling electronics in India for global sale.3
Rationalized duty structure to aid domestic production:
The government simplified customs duty slabs for eight categories of electronic parts to support high-volume domestic manufacturing. This rationalization directly helps sellers sourcing products from Indian suppliers for global markets.4
Objectives of customs duty
Governments levy customs duties for several key reasons, such as:
1. Revenue generation
Customs duties are a source of revenue for governments. They fund public services and infrastructure projects.
2. Protection of domestic industries
Customs duties on imported goods can help protect local industries from foreign competitors that may have cost advantages like cheap labor or subsidies.
3. Regulation of trade:
Duties can be used as a tool to control the volume and type of goods entering a country, thereby managing the balance of trade.
4. Discouraging consumption of certain goods
Higher duties may be imposed on goods deemed harmful or non-essential, such as tobacco or alcohol, to discourage their consumption.
5. Retaliation or negotiation
Customs duties can be used as a retaliatory measure in trade disputes or as a bargaining chip in international trade negotiations.
6. National security
Duties can restrict the import of goods that might pose a threat to national security.5
Types of customs duties
Customs duties not only help to regulate trade but also streamline export processes. A few types of customs duties in India are:
● Basic customs duty
Basic customs duty is a tax on the value of goods at an ad-valorem rate regulated by the Customs Tariff Act of 1975, which differs from product to product. The central government can exempt any goods from this tax.
● Additional Customs Duty or Special CVD
An additional customs, or special countervailing duty, is imposed on imported goods to align them with local and domestic taxes, ensuring they are on par with the goods produced within the country.
● Countervailing duty (CVD)
To create a level playing field, the central government imposes countervailing duty (CVD) on imported goods to offset subsidies given to producers in the exporting country. The duty amount is usually equal to the subsidy received by the exporter.
● Anti-dumping duty
An anti-dumping duty is a tariff that the government imposes on imports sold below fair market value to protect domestic industries from unfair competition.
● Education cess
Education cess is charged at 2% of the overall aggregate of customs duties. A 1% higher education cess can also be applied in different cases.
● National calamity contingent duty (NCCD)
The national calamity contingent duty is usually levied on tobacco, pan masala and similar products, which can harm human health. The tax rate can vary from 10% to 45% based on various factors.
● Safeguard duty
Safeguard duty is levied to ensure no domestic industries in India are harmed by external forces. It is calculated according to the loss suffered by local industries.
● Protective duty
Protective duties are imposed to protect the domestic or local industry against imports at a rate recommended by the Tariff Commissioner.
● Social welfare surcharge on imported goods
The social welfare surcharge is calculated as 10% of the aggregate custom taxes, duties and cesses imposed by the government.6
How is customs duty calculated?
Customs duty in India is based on the assessable value of goods, which is usually the Cost, Insurance, and Freight (CIF) value of the imported product.
The assessable value is calculated as follows:
Assessable value = Cost of goods + Insurance + Freight charges
Once this value is determined, the applicable customs duty rates — including Basic Customs Duty (BCD), Integrated Goods and Services Tax (IGST), and any applicable cesses — are added to it.
Here’s a simplified representation of the calculation:
Total customs duty = BCD + IGST + other applicable cesses (calculated as per assessable value)
The assessable value is calculated as follows:
Assessable value = Cost of goods + Insurance + Freight charges
Once this value is determined, the applicable customs duty rates — including Basic Customs Duty (BCD), Integrated Goods and Services Tax (IGST), and any applicable cesses — are added to it.
Here’s a simplified representation of the calculation:
Total customs duty = BCD + IGST + other applicable cesses (calculated as per assessable value)
Factors affecting customs duty calculation
Several factors influence the calculation of customs duty in India. Knowing these can help businesses avoid costly errors:
● Country of origin: Goods from FTA-partner countries may have reduced duties.
● Product classification: The HS code of the goods determines the applicable rates.
● Declared value of goods: Customs duties are calculated based on the value of the goods.
● End-use of product: Some items used in critical industries may have concessions.8
Exemptions and concessions under customs duty
The Indian government offers several exemptions and concessions to promote trade and manufacturing:
● Export Promotion Capital Goods (EPCG)
Reduced duties on imported machinery under the EPCG scheme to promote export-oriented production.9
● SEZ and EOU benefits
Special Economic Zones and Export-Oriented Units get customs duty exemptions.10
● Advance Authorization scheme
Advance Authorization scheme allows the duty-free import on goods and products incorporated into an exported product.11
● FTA exemptions
Products covered under FTAs enjoy duty concessions or exemptions.12
Payment of customs duty online
To pay customs duty online in India, importers can use the ICEGATE portal (the Indian Customs Electronic Gateway). Here’s how the process works:
Step 1:
Log in to the ICEGATE portal using your credentials.
Step 2:
Navigate to the e-payment section and enter your Bill of Entry (BoE) number.
Step 3:
Choose your authorized bank and complete the payment through net banking or NEFT/RTGS.
Step 4:
After successful payment, you will receive a challan/receipt, which is automatically shared with customs for further processing.13
Customs duty rates in India
Customs duty rates in India are typically based on the assessable value of goods, which includes the cost of the product, insurance, and freight charges (CIF). The total duty typically includes basic customs duty (BCD), Integrated GST (IGST), and other charges like the Social Welfare Surcharge or specific cesses.14 Rates are revised periodically by the Central Board of Indirect Taxes and Customs (CBIC) and published in the Customs Tariff Act. Businesses can check the latest duty rates through Indian Customs Tariff.…
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Frequently Asked Questions
1. What are the main features of customs duty?
The following are some of the features of customs duty:
○ It is applied to the movement of goods across borders regardless of sales or purchase.
○ It is applicable on physical goods.
○ It also includes education cess.
○ It is applied to the movement of goods across borders regardless of sales or purchase.
○ It is applicable on physical goods.
○ It also includes education cess.
2. What is the purpose of customs duty?
The purpose of customs duty is to:
● Protect local industries against international giants.
● Offer businesses a fair and equal chance to expand in new markets.
● Introduce a revenue source to the government.
● Promote India’s exports.
● Protect local industries against international giants.
● Offer businesses a fair and equal chance to expand in new markets.
● Introduce a revenue source to the government.
● Promote India’s exports.
3. What is the difference between customs duty and import tax?
Customs duty is imposed by the central government on goods when they cross international borders. It can be levied on imports and exports. On the other hand, import tax is the tax collected on imports.
4. What is the difference between customs duty and tariff?
Customs duty is an indirect tax on imported goods, while tariffs are direct taxes imposed on importers for goods brought from outside the country.
5. How should you check customs duty for your product?
You can check the applicable customs duty by visiting the ICEGATE portal. Use your product’s HS code to find detailed rates and calculate duties based on assessable value.
Published on December 29, 2022.
Updated on August 6, 2025.
Sources:
1. https://cleartax.in/s/customs-duty-india
2. https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=2098364®=3&lang=1
3. https://economictimes.indiatimes.com/industry/cons-products/electronics/2025-budget-boosts-make-in-india-initiative-with-reduced-import-duties-on-mobile-and-tv-components/articleshow/117827077.cms?from=mdr
4. https://economictimes.indiatimes.com/tech/technology/union-budget-2025-duty-cuts-to-help-india-achieve-manufacturing-ambitions-say-electronics-firms/articleshow/117835383.cms?from=mdr
5. https://www.bajajfinserv.in/custom-duty-india
6. https://tax2win.in/guide/customs-duty-in-india
7. https://www.oxyzo.in/blogs/how-to-calculate-custom-duty-a-comprehensive-guide/148464
8. https://www.mygstrefund.com/Customs-Duty-on-Imported-Goods/
9. https://www.taxtmi.com/article/detailed?id=13546
10. https://www.eximguru.com/exim/special_economic_zone_sez/ch_10_eou_vs_sez.aspx#customs_and_excise
11. https://www.taxtmi.com/article/detailed?id=13546
12. https://www.indiantradeportal.in/vs.jsp?lang=0&id=0,55,288#:~:text=Answer:%20FTAs%20are%20arrangements%20between,procurement%20and%20competition%20policy%2C%20etc.
13. https://www.bajajfinserv.in/custom-duty-payment
14. https://cleartax.in/s/customs-duty-india
Updated on August 6, 2025.
Sources:
1. https://cleartax.in/s/customs-duty-india
2. https://www.pib.gov.in/PressReleseDetailm.aspx?PRID=2098364®=3&lang=1
3. https://economictimes.indiatimes.com/industry/cons-products/electronics/2025-budget-boosts-make-in-india-initiative-with-reduced-import-duties-on-mobile-and-tv-components/articleshow/117827077.cms?from=mdr
4. https://economictimes.indiatimes.com/tech/technology/union-budget-2025-duty-cuts-to-help-india-achieve-manufacturing-ambitions-say-electronics-firms/articleshow/117835383.cms?from=mdr
5. https://www.bajajfinserv.in/custom-duty-india
6. https://tax2win.in/guide/customs-duty-in-india
7. https://www.oxyzo.in/blogs/how-to-calculate-custom-duty-a-comprehensive-guide/148464
8. https://www.mygstrefund.com/Customs-Duty-on-Imported-Goods/
9. https://www.taxtmi.com/article/detailed?id=13546
10. https://www.eximguru.com/exim/special_economic_zone_sez/ch_10_eou_vs_sez.aspx#customs_and_excise
11. https://www.taxtmi.com/article/detailed?id=13546
12. https://www.indiantradeportal.in/vs.jsp?lang=0&id=0,55,288#:~:text=Answer:%20FTAs%20are%20arrangements%20between,procurement%20and%20competition%20policy%2C%20etc.
13. https://www.bajajfinserv.in/custom-duty-payment
14. https://cleartax.in/s/customs-duty-india
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