Customs Duty in India - Types, Calculation, & Latest Rates

What is Custom Duty?

Custom duty is an indirect tax levied on all the goods and commodities imported to India and some of the goods exported from India. In other words, customs duty, or import/export tariff, is the term used to define taxes that are imposed on the import and export of goods.

What are the Types of Custom Duty in India?

• Basic Customs Duty (BCD)
  This is the most common type of customs duty prevailing in India. It is levied on all the imported goods as a percentage of the assessable value. The assessable value is calculated by adding up the cost of goods, freight for transporting the goods, and insurance charges. There is no specific rate of BCD, and it can vary on the basis of the country of origin and the types of goods being imported. Products like lifesaving drugs are exempt from BCD.
• Additional Customs Duty (ACD)
  Additional customs duty is levied on the import of certain goods to India. It is also known as countervailing duty and is charged at the same rate at which excise duty is levied on similar goods produced in India. The purpose of this duty is to prevent people from evading excise duty on goods produced locally by imposing an equivalent tariff rate on imported goods.
• Education Cess and Secondary and Higher Education Cess
  This is the additional charge or an additional tax that is calculated over and above the total customs duty payable. The education cess is charged at 2%, and the secondary and higher education cess is charged at 1% of the total customs duty calculated. This amount is used for the development of the education sector of India.
• Anti-Dumping Duty
  Anti-dumping duty is the duty that is levied on those products that receive subsidies or exemptions in their country of manufacture. In other words, anti-dumping duty is levied on the goods valued at a price below their market price. The purpose of this duty is to protect the domestic produce from unfair competition. Anti-dumping duty is levied as a percentage of the imported goods value that has the potential to impact the domestic producers negatively.

What are the Factors Affecting the Calculation of Customs Duty?

The rate at which customs duty is levied on imported goods is affected by a lot of factors. Given below are the factors affecting the calculation of customs duty -

• Value of the Goods: The value of the goods plays the most important role in determining the custom duty chargeable. The tax is generally calculated on the assessable value of the goods. It consists of the cost of goods, freight charges, insurance charges, etc. Therefore, the higher the assessable value, the higher the customs duty.
• Country of Origin: The country in which the imported goods are manufactured also affects the customs duty calculation. This happens because India has different trade agreements with different countries. For example, if the goods are imported from a country having a Free Trade Agreement (FTA) with India, the customs duty might be lower than that imposed on other countries.
• Nature of Goods: The ways in which goods are classified also affect the calculation of customs duty. The HSN code of the goods determines whether any additional duty, such as anti-dumping duty, is applicable to them.
• Other Factors: The other factors that affect the calculation of customs duty include the packaging of goods, mode of transportation, and exemptions or concessions given to the importer.

How to Calculate Custom Duty in India?

The calculation of customs duty on the goods imported to India involves a lot of steps -

• Step 1. Determine the Assessable Value of Goods: Assessable value is calculated by adding the cost of goods, freight charges, and insurance charges. The importers must provide an accurate value of the goods imported to avoid penalties in the future and other legal issues.
• Step 2. Identify the Rates Applicable: Find out the rates of customs duty applicable to the goods imported to India vary depending on various factors like the type of goods, nature of classification under HSN (Harmonized System of Nomenclature), and the country of origin.
• Step 3. Calculate Basic Customs Duty: Basic customs duty is computed as a percentage of the assessable value of the goods imported. Basic customs duty is levied on all the goods imported to India. You must refer to the customs tariff schedule to determine the rate of basic customs duty.
• Step 4. Calculate Additional Customs Duty: In the next step, calculate the additional customs duty, which is also called countervailing duty. It is applied to the imported goods to offset the impact of any subsidies or exemptions that the good might have received in the country of its manufacture.
• Step 5. Calculate Education Cess and Other Cesses: Now calculate the EC and SHEC that is calculated on the total customs duty payable. Once you have calculated the customs duty payable, you can calculate the education cess and other cesses. At this stage, you should also calculate any additional duty applicable to the product, like the anti-dumping duty, special additional duty, or the safeguard duty.
• Step 6. Consider the exemptions and concessions applicable to the importers: The importers/exporters might be eligible for any concession or exemption on the customs duty payable depending on the nature of the product. Therefore, it is important to consider these exemptions before making the payment of customs duty.

Rates of Customs Duty

Understanding customs duty in India is essential for both importers and exporters. It is a multifaceted system that encompasses different types of customs duties, each with its unique purpose and calculation method. As the global trade landscape continues to evolve, staying informed about the latest rates and regulations is integral for individuals and businesses engaged in international trade.