Customs duty aims to create a level playing field for domestic producers by making imported goods relatively more expensive. It also serves to monitor and regulate the movement of controlled items, ensuring compliance with national and international trade laws. You can check your business loan eligibility if your company is looking to improve import/export infrastructure or working capital.
What is customs duty?
Customs duty is a tax imposed on goods as they move across international borders. Simply put, it is a charge applied to the import and export of products. Governments levy customs duties to generate revenue, protect local industries, and manage the flow of goods in and out of the country. The applicable rate of customs duty depends on factors such as the origin of the goods and the materials they are made from. In India, customs duty is governed by the Customs Act, 1962, and is administered by the Central Board of Excise and Customs (CBEC).
Objective of custom duty
- Revenue generation: Customs duties are a significant source of revenue for governments, helping to fund public services and infrastructure.
- Protection of domestic industries: By imposing duties on imported goods, domestic industries are shielded from foreign competition, promoting local businesses and employment.
- Regulation of trade: Customs duties help control the import and export of goods, ensuring compliance with national and international trade regulations.
- Prevention of illegal trade: Imposing customs duties discourages smuggling and the illegal trade of restricted or prohibited items.
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Types of customs duty
India levies various types of customs duties on imported and exported goods, depending on their nature, origin, and use. Here is a breakdown of the main types:
- Basic Customs Duty (BCD): This is the standard duty charged on most imported goods, usually ranging between 5% and 40% of the goods’ value.
- Integrated Goods and Services Tax (IGST): Applied on imports in addition to BCD, IGST matches the domestic GST rate applicable to similar goods, based on the HSN code.
- GST Compensation Cess: Levied on select goods such as luxury items and tobacco, this cess is meant to offset revenue loss for states post-GST implementation.
- Education Cess and Higher Education Cess: These are additional levies on customs duties, 2% for education and 1% for higher education, used to support national education initiatives.
- Countervailing Duty (CVD): Imposed on subsidised goods from other countries, CVD offsets unfair price advantages and supports domestic manufacturers.
- Anti-Dumping Duty: Charged when goods are imported below their normal value, this duty protects Indian industries from unfair pricing practices by foreign exporters.
- Safeguard Duty: Temporarily applied when a surge in imports threatens domestic industry, this duty gives local producers time to become more competitive.
- Social Welfare Surcharge: Calculated at 10% of the total customs duty, this surcharge supports various social welfare schemes.
- National Calamity Contingent Duty (NCCD): Imposed on specific products such as tobacco, NCCD helps raise funds for disaster relief and emergency preparedness.
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Importance of custom duty
Customs duty serves both as a trade regulation tool and a key source of revenue for the government. Here’s why it holds significant importance:
- Regulates foreign trade: By imposing tariffs on imported goods, customs duty helps control the volume and type of goods entering the country, ensuring balance in international trade.
- Protects domestic industries: Higher customs duties on certain imports make foreign products less competitive, encouraging consumers to opt for local alternatives and supporting homegrown businesses.
- Ensures fair competition: Customs duty prevents market distortion caused by underpriced imports, thereby maintaining a level playing field for Indian manufacturers.
- Generates government revenue: The taxes collected through customs duties contribute substantially to national revenue, helping to fund public services and infrastructure development.
- Supports welfare and development: Revenue from customs duty is often directed towards key sectors like education, healthcare, transport, and rural development, promoting overall economic progress.
What are the factors affecting the calculation of customs duty?
- Nature of goods: The type of goods being imported or exported significantly influences the duty rates, with different rates applied to different categories of products.
- Value of goods: Customs duty is often calculated as a percentage of the goods' value, determined based on the transaction value, market value, or a customs-assessed value.
- Country of origin: The country where the goods are manufactured or from which they are exported can affect duty rates, especially under trade agreements or preferential tariff schemes.
- Trade agreements: Bilateral or multilateral trade agreements between countries can lead to reduced or exempted customs duties on certain goods.
- Purpose of import/export: The intended use of the goods, whether for personal use, commercial purposes, or industrial use, can influence the applicable duty rates.
How to calculate customs duty in India?
The calculation of customs duty on imported goods involves multiple steps:
Step 1: Determine the assessable value of goods
Begin by calculating the assessable value, which includes the cost of the goods, freight charges, and insurance costs. This value forms the basis for customs duty calculation. Importers must declare this value accurately to avoid penalties or legal complications.
Step 2: Identify the applicable duty rates
Check the relevant rates of customs duty for the imported goods. These rates depend on several factors such as the type of goods, their classification under the Harmonised System of Nomenclature (HSN), and the country of origin.
Step 3: Calculate the Basic Customs Duty (BCD)
Apply the appropriate percentage of BCD to the assessable value. This duty is levied on nearly all imported goods and can be found in the official customs tariff schedule.
Step 4: Calculate the Additional Customs Duty (Countervailing Duty)
Next, calculate the additional customs duty, often referred to as the countervailing duty (CVD). This is imposed to neutralise any subsidies or tax benefits the product may have received in its country of manufacture.
Step 5: Calculate Education Cess and other cesses
Calculate the Education Cess (2%) and Secondary and Higher Education Cess (1%) on the total customs duty payable. At this point, also account for any additional applicable duties such as anti-dumping duty, safeguard duty, or special additional duty.
Step 6: Consider exemptions and concessions
Finally, assess whether any exemptions or concessions apply to the imported goods. Depending on the nature and purpose of the import, the importer may be eligible for certain reductions or waivers in customs duty. These must be factored in before the final payment is made.
Latest custom duty rates in India
Goods Category |
Customs Duty Rate |
Electronics |
20% |
Automobiles |
25% |
Textiles |
15% |
Agricultural products |
10% |
Pharmaceuticals |
5% |
How to pay customs duty online?
- Access the ICEGATE portal: Visit the official ICEGATE website, which facilitates online payment of customs duties.
- Register or log in: Create an account or log in if you already have one, ensuring you have the required credentials and documentation ready.
- Select e-payment option: Navigate to the e-payment section of the portal and select the customs duty payment option.
- Enter details: Fill in the necessary details, including the Bill of Entry number, Importer Exporter Code (IEC), and the duty amount to be paid.
- Choose payment method: Select a preferred payment method, such as net banking, credit/debit card, or other available options.
- Confirm and pay: Review the entered details and confirm the payment. Once the payment is processed, you will receive a confirmation receipt, which you should save for future reference.
Conclusion
Customs duty plays a crucial role in regulating international trade, protecting domestic industries, and generating government revenue. Understanding its objectives, types, calculation factors, and payment methods is essential for businesses engaged in import and export activities. Staying updated on the latest customs duty rates can help businesses make informed decisions and comply with regulations effectively.
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