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What are the types of custom duties in India?

Custom duty is the tax imposed by governments on imports and exports. Learn more about its types with examples in this blog.

International trade in India is growing with each passing year. When exporters ship their goods across international borders, they must obtain documentation and pay customs duties to ensure all compliance is met. It also ensures the shipment reaches the destination port without any hassle. It is important to understand these customs duties and their role in exports.

What is custom duty?

Custom duty is the tax imposed by the Central and state governments on import and export of goods and services across international borders – which is commonly known as import duty and export duty, respectively. Government levies custom duty to regulate the movement of goods and safeguard the country’s economy, employment and environment. Custom duties also aim to control the movement of restrictive and prohibited goods between countries.

Every product has a predefined duty rate determined by considering factors including how the goods were sourced, where they manufactured and what raw materials were used to manufacture them. Every product brought to India for the first time must be declared according to the customs rules. For example, any gift or product you bring to India while travelling back, you must declare it with the customs¹.

Types of custom duties

Custom duties not only helps to regulate trade but also streamlines export processes. A few types of custom duties in India are²:

· Basic Customs Duty
· Additional Customs Duty or Special CVD
· Countervailing Duty (CVD)
· Anti-Dumping Duty
· Education Cess
· National Calamity Contingent Duty
· Safeguard Duty
· Protective Duties
· Social Welfare Surcharge on Imported Goods

Basic Customs Duty

Basic Customs Duty is the duty levied under Customs Act 1962, and differs from product to product. The Central government can exempt different goods from Basic Customs Duty.

Additional Customs Duty or Special CVD

An Additional Customs or Special Countervailing Duty is imposed on imported goods to equalize imports with local and domestic taxes. This brings imports in India on an equal level with the goods manufactured and produced within the country.

Countervailing Duty (CVD)

To create a level playing field, the Central government imposes Countervailing Duty (CVD) as an import tax on goods that are imported to India to offset subsidies made to producers of these goods 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 a government imposes on imports that are priced below fair market value.

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 different factors.

Safeguard Duty

The 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 is 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.

How is the customs duty calculated?

Most custom duties are calculated based on the value of goods. This is usually determined by the rules imposed by the Customs Valuation Rules, 2007. If there are any doubts or miscalculations in the accuracy of the value of goods, such products are valued through the following method³:

• Rule 4 and 5 - It is a comparative value method that compares the value of similar or identical goods.
• Rule 7 - It is a deductive value method that uses the sale price of goods in the country importing it.
• Rule 8 - It is a computed value method that uses costs of materials, fabrication and profit in the country where production took place.
• Rule 9 - It is a fallback method based on other methods with added flexibility.

Recent updates in custom duty

Increase in basic customs duty

One of the recent updates in customs duty was the increase in basic duties, effective from September 27th, 2018. The Indian government increased the basic customs duty on products like footwear, washing machines, air-conditioners, refrigerators, tableware, furniture fitting and jewellery, among others.

E-Sanchit

To offer ease of running businesses, the Central Board of Indirect Taxes and Customs launched e-Sanchit platform to enable registered users with ICEGATE to file various documents online.

Customs duties are undoubtedly a crucial part of international trade. These duties help control and organize trade, while helping local importers and exporters streamline their operations. To avoid overpaying any duty or tariffs, every exporter must be aware of these customs duties.

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Frequently Asked Questions

What are the main features of custom duty?

Following are some of the features of custom duty:
· It is applied to the movement of goods regardless of sales or purchase
· It is only applicable to physical goods and not services
· It also includes education cess.

What is the purpose of custom duty?

Following are some of the major objectives of custom duty:
· Protect local industries against international giants
· Offer a fair and equal chance to expand in new markets
· Introduce a revenue source to the government
· Promote India’s exports

What is the difference between custom duty and import tax?

Custom 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.

What is the difference between custom duty and tariff?

Custom duty is an indirect tax imposed on the importer by the government for imported goods. Tariffs are direct taxes imposed by the government on importers who import goods from outside the country.

Published on December 29, 2022.

Sources:
1. https://www.shiprocket.in/blog/customs-duty-meaning-types-india/
2. https://www.indiafilings.com/learn/types-of-customs-duty/
3. https://cleartax.in/s/customs-duty-india
4. https://indialends.com/tax/custom-duty
5. https://aktassociates.com/blog/custom-duty-types-rates-features/

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*Map not to scale. The map has been used for design and representational purpose only, it does not depict the geographical boundaries of the country. These do not conform to the external boundaries of India recognized by the Survey of India.