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Customs duties in India: Meaning, types and custom duty rates

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

When exporters ship their goods across international borders, they must obtain documentation and pay customs duties to ensure all compliance is met. With India’s diverse tariff structure and frequent policy updates, exporters must gain a thorough understanding of customs duties in India to ensures their shipments reach its destination without any hassle. In this blog post, we will discuss types of customs duties, its objectives, methods of payment, and more.

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.

What is customs duty?

Customs duty, also known as import duty or export duty, is a tax imposed by the government on goods that cross international borders. It plays a vital role in regulating the movement of goods, protecting the economy and businesses, and controlling the entry of restricted or prohibited items. Each product has a specific duty rate determined by its source, manufacturing location, and raw materials. When goods are brought into India for the first time, whether they are commercial products, gifts, or personal items from travel, they must be declared in accordance with customs regulations.¹

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
● 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 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.³

Objectives of customs duty

Customs duties are levied with the objective of regulating trade, protecting domestic industries, and generating revenue.⁴ Some objectives of levying customs duties are:

Revenue generation:

Import taxes are a major source of government revenue, used to pay for public goods and services.

Protection of domestic industries:

The government determines the level of taxes that should be levied on imported goods to shield local industries from external competition.

Regulation of imports:

Taxes through customs also assist in regulating the flow and varieties of goods that are allowed into the country, thereby protecting consumers from inferior goods.

Trade policy implementation:

Regulatory measures include duties to ensure compliance with trade policies and agreements with other countries.⁴

How is customs duty calculated?

Most customs 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, the following are some methods used to value the products:

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

Online payment of customs duty

Online platforms in India make customs duty payments easy, increasing efficiency and effectiveness for importers. Here are some of the steps involved:

1. Visit the ICEGATE portal:

ICEGATE is the official Indian Customs Electronic Gateway which facilitates customs duty payment.

2. Login or register:

To access the database, enter your login details or register to create a new account in the ICEGATE.

3. Select e-payment:

Go to the e-payment tab and input the required information such as the bill of entry number, appropriate bank information, etc.

4. Make payment:

Select the preferred bank for the payment and finalize the payment process.

5. Receive confirmation:

Upon successful payment, a confirmation receipt is issued which is useful for future reference and filing.

Customs duty rates in India

Customs duty rates in India vary by product and classification under the Customs Tariff Act. The government may regularly modify these rates based on the economy and trade regulations.
Traders should refer to the current tariff schedule issued by the Central Board of Indirect Taxes and Customs (CBIC) for accurate and updated information.⁸

Recent updates in customs duty

1. Changes in duty exemptions:

The Indian government frequently announces revisions to customs duties on various items to promote local manufacturing. The Union Budget 2024-25 proposed reduction or removal of duties on gold, silver, fully assembled mobile phones and chargers, critical minerals, and inputs for leather and textiles are being considered for reduction or removal. Meanwhile, customs duties on chemicals and certain telecom equipment have been increased to encourage domestic production.⁹

2. Digitalization initiatives:

The Government of India has launched digital interfaces such as ICEGATE and e-Sanchit to enhance online documentation and payment mechanisms to ease compliance for businesses.

3. Amendments in the Customs Act, 1962:

Section 28 DA is being amended to accept various types of proof of origin in trade agreements to align with new trade agreements which provide for self-certification, making international trade more efficient.¹⁰

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Frequently Asked Questions

1. What are the main features of customs duty?

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 only applicable to physical goods and not services.
● It also includes education cess.

2. What is the purpose of customs duty?

Following are some of the major objectives of customs duty:
● Protect local industries against international giants.
● Offer businesses 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.

Published on December 29, 2022.

Sources:

1. https://cleartax.in/s/customs-duty-india

2. https://www.indiafilings.com/learn/types-of-customs-duty/

3. https://www.indiafilings.com/learn/types-of-customs-duty/

4. 4 https://cleartax.in/s/customs-duty-india
5. https://www.geeksforgeeks.org/custom-duty-types-features-examples-updates/

6. https://cleartax.in/s/customs-duty-india

7. https://cleartax.in/s/customs-duty-india

8. https://cleartax.in/s/customs-duty-india

9. https://www.india-briefing.com/doing-business-guide/india/taxation-and-accounting/customs-duty-and-import-export-taxes-in-india

10. https://www.india-briefing.com/news/major-revisions-to-custom-duty-to-boost-local-manufacturing-33792.html/#:~:text=In%20the%20Union%20Budget%202024,the%20leather%20and%20textiles%20industries.

11. https://www.indiabudget.gov.in/doc/cen/dojstru1.pdf

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