Imported or exported items by the Indian government are assessed customs duties. The Customs Act 1962 and the Customs Tariff Act 1975 legally establish its application. Customs taxes serve mostly to control international commerce, safeguard domestic companies against foreign rivals, and generate government income. The value of the items for customs, namely cost, insurance, and freight (CIF), serves as the foundation of the obligation. Being cheaper or subsidised, customs duty keeps foreign goods from outcompeting local manufacturers. Additionally, it aids in the regulation of commodity flow inside and outside of the nation as well as the balance of payments. The kind, origin, and ultimate purpose of the items determine the duty rates. Customs duty in India has several parts, including the Social Welfare Surcharge, IGST, and Basic Customs Duty.
What is Customs Duty?
The Indian government charges duties on imports or exports under customs duty. It is implemented under the Customs Act 1962 and the Customs Tariff Act 1975. The chief aims of customs duty are to regulate international commerce, safeguard local businesses from foreign competitors, and provide money for the government. The duty is based on the customs value of the goods, which is cost, insurance, and freight (CIF). Customs duty, being either lower or mischievously subsidised, stops foreign goods from outcompeting local producers. It also enables management of inflows and outflows of goods across and beyond the nation, as well as to balance the payments. The kind, provenance, and ultimate use of the products affect the duty rates. Customs tax in India comprises many elements, including Basic Customs Duty, IGST, and Social Welfare Surcharge.
Types and Rates of Customs Duties
Indian customs charges differ depending on the nature of the products, their source, and intended importation purposes. Custom taxes under the Customs Tariff Act 1975 and the Customs Act 1962 are levied on products imported or exported from India.
1. Basic Custom Duty (BCD)
- Every imported item into India must pay the BCD under Section 12 of the Customs Act, 1962, and the Customs Tariff Act, 1975.
- BCD depends on how items are categorized under the First Schedule of the Customs Tariff Act. Although most products range from 5% to 40%, BCD spans from 0% to 100% or more. Bcd’s primary goals are to shield local businesses from global competition and generate funds for the government.
- It is imposed on the assessable value (CIF value) of imported goods.
2. Further Customs Duty (Countervailing Duty)
- To offset the excise tax on similar products made in India, it was first imposed under Section 3(1) of the Customs Tariff Act, 1975.
- Following the launch of GST (July 1, 2017), IGST on imports has taken the place of CVD.
- However, it still holds good in some specific cases, for example, imports from certain sectors not fully covered by GST.
- It was intended to provide a level playing field between imported and locally produced products.
3. Special Additional Duty (SAD)
- SAD was imposed under Section 3(5) of the Customs Tariff Act, 1975, to offset local sales tax or VAT on indigenous merchandise.
- The normal rate was about 4%.
- With the implementation of GST, SAD, like CVD, has been replaced by IGST.
- Earlier, it was paid back when goods were resold in India after importation, hence exempting double taxation.
4. Social Welfare Surcharge (SWS)
- The Finance Act of 2018 replaced the Education Cess and Secondary & Higher Education Cess on imports with SWS.
- The rate is 10% of the Basic Customs Duty (BCD).
- The revenue raised is deployed for education, health, and social welfare programs.
- This tax is levied only on BCD and not on IGST or CVD taxes.
5. IGST on Import Goods and Services
- Introduced GST causes imported products to draw IGST as per Section 3(7) of the Customs Tariff Act, 1975. IGST rate is equal to the • It is calculated on the assessable value plus BCD plus SWS. GST rate of similar goods available for sale in India.
- Importers may claim Input Tax Credit (ITC) on IGST paid on imports, unlike the prior CVD/SAD system.
- Standard IGST rates range from 5% to 28% according to the kind of goods.
6. Anti-Dumping Duty
- This obligation is imposed when goods are exported at a price less than the usual value or cost of production in the country of export.
- Its purpose is to protect Indian producers from unfair trade practices (dumping).
- It was imposed after an investigation by the Directorate General of Trade Remedies (DGTR).
- The rate varies for every product and exporting country, and is not fixed.
- It can be a fixed sum for a unit or a proportion of the import value.
7. Safeguard Duty
- Safeguard duty is imposed when there is an unexpected rise in imports of a specific commodity that is likely to injure the local industry.
- It is a short-term duty, imposed in order to provide local industries with a lead time.
- The rate and period are decided by the government on the basis of an investigation by the DGTR.
- It is usually reduced gradually over the years and then withdrawn.
8. Countervailing Duty on Subsidised Articles
- This duty is levied when the government provides subsidies to imported goods in the exporting country, and as a result, they become cheaper in India.
- The duty is imposed to counteract subsidies and ensure fair competition.
- The rate is determined after investigation by the DGTR.
- It is required under Section 9 of the Customs Tariff Act of 1975.
9. Protective Responsibility
- Protective responsibility protects domestic industries which are either rising or vulnerable to foreign competition.
- The Central Government adopted it on the basis of suggestions from the Tariff Commission.
- It is fixed according to the extent of protection needed for the local industry to thrive and stay competitive.
10. Export Duty
- Export duty is charged on certain commodities being exported from India.
- Its aim is to save essential goods, restrict exports, and reduce inflation.
- Iron ore, raw skins, and hides are some of the commodities that have been hit by this policy with a view to improving exports.
- The rates range between 5% and 50% based on the commodity.
11. Agriculture Infrastructure and Development Cess (AIDC)
- Introduced in the Union Budget 2021, AIDC is a cess levied on specific imports, including crude oil, gold, silver, alcoholic drinks, and agri products.
- Its purpose is to mobilise funds for the development of agricultural infrastructure in India.
- The rate varies by product (e.g., 50% for crude oil and 2.5% for gold and silver).
- AIDC is computed on the basis of assessable value, and IGST is levied upon the addition of AIDC.
12. Safeguards and Protective Measures
- Preferential or concessional duty may be levied if the items are sourced from nations with which India has Free Trade Agreements (FTAs) or Preferential Trade Agreements (PTAs).
- If the importer is to benefit from zero or reduced customs charges, they must provide a Certificate of Origin (CoO).
- It has advantages for both countries by encouraging trade collaboration between them.
Calculation of Customs Duty
The following are the steps to be followed to calculate the total customs duty owing on imported products:
1. Find the Assessable Value (AV)
Generally speaking, the CIF (Cost + Insurance + Freight) of the commodities being imported is the assessable value, or customs value.
Under the Customs Valuation Rules, 2007, default percentage values can be used where the insurance or freight fees are unavailable.
Assessable Value = CIF Value (Cost + Insurance + Freight) in INR using the CBIC exchange rate.
2. Impose Basic Customs Duty (BCD)
This is the basic duty charged on imports under the First Schedule of the Customs Tariff Act, 1975.
BCD = (Assessable Value × Applicable BCD rate)
3. Social Welfare Surcharge (SWS)
Added in Budget 2018, SWS is charged at 10% of the amount of BCD.
SWS = (BCD × 10%)
4. IGST on Imports
In the GST regime, Integrated GST (IGST) is charged on imports in place of CVD and SAD. The charge is equal to that charged on equivalent goods sold domestically.
IGST = (AV + BCD + SWS) × IGST rate
5. Add any other duties that are pertinent
Anti-dumping, safeguard, or countervailing duty on subsidised goods could be levied in exceptional cases to safeguard the Indian industry.
6. Total Customs duty payable –
The total duty will be BCD + SWS + IGST + any other duties that are applicable.
Essential Lessons
- Not a single one, the total rate on imported goods is a composite of several taxes and cesses.
- The efficient rate of duty varies greatly depending on the kind of product, country of origin, and pertinent trade treaty.
- Importers can apply for ITC for IGST levied on imports under GST and should always consult the most recent CBIC alerts or Customs Tariff Schedule for current rates.
- The exchange rate that is notified by the CBIC is used in place of the market rate while filing the Bill of Entry.
- Customs duties are calculated to two decimal places.
- Export duties are mostly levied on natural resources or speciality products.
Conclusion
Customs duty helps the government to generate large revenue, control exports and imports, and promote fair competition—all of which are absolutely necessary components of India’s economic and trade structure.
By effectively controlling trade, customs taxes support industrial growth and national growth through the combination of financial management and economic protection.
Therefore, anybody wanting to engage in international commerce and corporations alike needs to have a thorough grasp of its definition, kinds, and methods of computation.
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