26 July 2021 • 19 min read
Costs to Clear your Imported Goods in India
From customs duties to IGST, know all there is to know about the costs associated with importing goods into India, how to calculate them, and where to pay.
When goods cross international borders, they attract a government-imposed tax called customs duty. When customs duty is levied in the country of export, it is called an export duty. When it is applied in the country of import, it is called an import duty. The import and export of items can attract not one but multiple customs duties, along with various other charges. These duties and charges, when combined, can add up to a considerable amount and impact your total shipping costs. Therefore, it is essential for importers and exporters to fully understand the customs duties applicable on their goods and how to calculate them.
In this blog, we will be discussing import duties in India. If you plan to import goods into India, this article will give you an idea of the various import customs duties, taxes, and other government charges you will be paying.
Import duty in India
India, like any other country, levies import duties to a) protect the local economy from cheap foreign products, b) earn government revenue, and c) monitor the movement of goods crossing its borders. The duty rate or tariff varies from product to product and is determined on the basis of factors such as where the product is made or acquired, and what it is made of.
In India, import duties (or rather, all customs duties) are governed by the Customs Act, 1962, and the Finance Act. These charges are collected by the Central Board of Indirect Taxes and Customs (CBIC). Changes in customs duty rates are announced in the annual Budget, which is presented on the first day of February, or through notifications in the Gazette of India.
Types of import duties in India
- Basic Customs Duty (BCD): As its name suggests, this is the basic tax levied on imported goods. The rate of duty ranges from zero percent to 100 percent. The government might exempt certain goods (Covid-19 vaccines and life-saving drugs, for example) from BCD by imposing a zero percent rate. Imports might also invite a reduced or zero percent BCD rate if imported under a free trade agreement.
- Countervailing Duty (CVD): Also called Additional Customs Duty,this is charged on goods that have benefited from government subsidies and/or tax breaks in the country of manufacture. The CVD ensures local products are not at a disadvantage due to cheaper imports. In India, CVD is levied at rates of zero percent, six percent and 12 percent.
- Anti-dumping Duty (ADD): This is a duty charged on goods that are imported at a much lower value than their normal market price. Exporting countries might resort to dumping to gain an unfair advantage in a foreign market or to get rid of excess stock. Importing countries use the ADD to protect the local industry from a flood of cheap imports. In April, India levied an ADD on certain chemical imports from the European Union, Saudi Arabia, United Arab Emirates and Chinese Taipei for a period of five years to protect local producers. Under Indian law, the ADD charged cannot exceed the dumping margin, which is the difference between the product’s normal price and the price at which it is imported.
- Social Welfare Surcharge (SWS): This surcharge was introduced by the Indian government in 2018 to fund its social welfare projects related to health, education, and social security. It replaces the Education Cess and the Secondary and Higher Education Cess that were previously applied on imported goods. Goods exempt from Education Cess do not attract SWS. Social welfare surcharge is levied at a rate of 10 percent on the aggregate of duties and cesses applied.
- Safeguard Duty: Indian Customs levies a safeguard duty on goods whose increasing import volumes are deemed a threat to domestic producers. For example, solar cells imported from China currently attract a safeguard duty. The objective of this duty is to give temporary relief to local industry. The duty rate is notified by the government and is usually calculated on the basis of potential losses incurred by local industries.
- Protective Duty: Similar to safeguard duty, protective duty is levied on imports with the objective of protecting the interests of domestic producers. Protective duty is imposed on the recommendation of the Tariff Commission, which must be approved by the government. The Commission also recommends the duty rate. Protective duty is considered a more permanent form of relief to domestic industries than safeguard duty because it requires the government to pass a Bill in Parliament, which might then become law.
- National Calamity Contingent Duty (NCCD): This is levied on imported goods specified in the Seventh Schedule to the Finance Act, 2001 (tobacco products, petroleum oils, certain types of motor vehicles, etc). The duty rate is also specified. The NCCD finances the National Disaster Response Fund, which the government uses to meet expenses incurred on disaster relief and rehabilitation.
- Agriculture Infrastructure and Development Cess (AIDC): This is charged on 29 products, including gold, silver, apples, alcohol (excluding beer), pulses, palm oil, urea, petrol and diesel. It was introduced in Budget 2021-22 with the objective of funding agriculture infrastructure development. The AIDC rate ranges from 1.5 percent (coal, lignite, peat) to 100 percent (alcoholic beverages).
Other import-related charges
- Integrated Goods and Services Tax (IGST): In addition to customs duties in India, imported goods invite IGST. It is charged at rates of 5 percent, 12 percent, 18 percent, and 28 percent, as stated in the IGST Act, 2017. The IGST is levied on the assessable value of the imported goods plus the value of import duties charged. (The GST is a single, indirect tax replacing multiple Central and state taxes such as excise duty, sales tax and value-added tax. It has two components – Central GST or CGST and State GST or SGST. The IGST is CGST plus SGST)
Note: This example is for an imported product that attracts BCD and no other import duties
Are you an exporter? Read our guides on exporting with and without payment of IGST here and here.
- Compensation Cess: In addition to IGST, certain notified imports (tobacco products, coal, petroleum, cars) attract a compensation cess. This cess seeks to compensate the Indian states for any loss of tax revenue arising from the implementation of GST in its first five years (2017-2022). With GST, the states lost the right to impose local indirect taxes on goods. The cess covers imports because imports are treated as inter-state supplies under GST. To calculate compensation cess, the prescribed rate is applied to the transaction value, which is the assessable value of the goods plus import duties charged.
- Customs Handling Fee: In addition to import duties, India charges a one percent customs handling fee on all imports. This is charged on the total value of the goods plus the freight costs and insurance.
How import duty is calculated
Import duty is calculated as a percentage of the assessable value of the imported goods. If the goods are imported under the Cost, Insurance, and Freight (CIF) Incoterm, assessable value is CIF plus customs handling fee (of one percent). To get the CIF value, simply add the cost or invoice value of the goods and the insurance and freight costs.
Here’s an example of how to calculate the total duty due on an import consignment that is shipped under CIF and on which basic customs duty, social welfare surcharge and IGST are applicable.
Note: Assessable value might vary depending on the Incoterm used.
How to pay import duty in India
After the imported goods are cleared by Indian Customs, you can pay import duties online on Icegate, the Indian Customs’ electronic data interchange platform. Just follow these steps:
- Go to the Icegate e-payment portal
- Log in using your Icegate credentials or by entering your Import/Export Code
- Click on the e-payment option
- You will see all your unpaid e-challans or electronic payment demands
- Select the challan you wish to pay
- Select your bank and payment method
- You will be redirected to the bank’s payment gateway
- Make your payment
- Once payment is complete, you will be redirected to Icegate
- Here, you can take a print of you payment receipt
Note: IGST payments must be made on the GST portal or in cash.
Factors affecting import duty
There are several factors to keep in mind while calculating import duty:
- Harmonised System (HS Code): The rate of import duty charged on a product depends on its HS Code. The HS Code is a universally-accepted classification system for traded goods. Under this system, each product is assigned a unique six-digit code. Customs authorities check a product’s HS Code to assess the duty due on it. Countries are allowed to add more digits to the six-digit HS Code for further classification. As a result they have their own versions of the HS Code. The Indian version is called the ITC-HS Code, which assigns an eight-digit code to each traded product.
- Free Trade Agreements (FTAs): Remember to check if your country has a free trade agreement with the country you import goods from. Lower duty rates – called preferential tariffs – are one of the many benefits of FTAs. India has FTAs with multiple countries and regions. Under these agreements, partner countries enjoy reduced import duty rates and even duty exemptions on certain traded goods.
- Rules of Origin: Preferential tariffs under FTAs depend on ‘originating status’. This means a trader importing goods into India is eligible for preferential tariffs only if the goods are made in the country of export with which India has an FTA. To claim a duty benefit under an FTA, the importer must furnish at the time of import a Certificate of Origin as well as a self-declaration that the goods qualify as originating goods and are, therefore, eligible for preferential tariffs. Furthermore, the importer is required to find information regarding the goods’ originating status and maintain this for at least five years.
Read about India’s experience with FTAs here
Duty exemption – what is it?
India has several duty exemption schemes that allow the duty-free import of raw materials that go into making products for export. These schemes not only apply to raw materials and items that are physically incorporated into the finished products but also fuel and packaging material used in the production process. The main objective of these duty exemption schemes is to help Indian exporters and promote Indian exports. Hence, they are also called export promotion schemes. Two popular duty exemption schemes in India are:
- Advance Authorisation (AA) Scheme: Raw materials and inputs for export production attract zero percent import duty, provided a minimum 15 percent value addition is made to the final product. To benefit from this scheme, an exporter must apply for an AA licence from the website of the Directorate General of Foreign Trade (DGFT) and import the inputs within 12 months of receiving it. Furthermore, they must export the final product within 18 months of receiving the licence.
- Duty-Free Import Authorisation (DFIA): Under this scheme, an exporter can import inputs without paying basic customs duty on them. However, there is a 20 percent value-addition requirement. Also, DFIA imports can be made only after the export process is completed. The exporter can apply for a DFIA licence, valid for 12 months, from the regional port authority within 12 months of the export date.
To know more about India’s export promotion schemes, click here.