Import and Export Duties: Customs Duty In India

Introduction

India, a major player in the global economy, has a complex landscape of import and export duties that significantly influence its trade dynamics. Understanding these duties is crucial for businesses looking to navigate India’s diverse market and optimize their trade strategies.

Historical Background

India’s journey from a colonial hub known for spices to a modern IT and manufacturing powerhouse is remarkable. The structure of import and export duties has evolved significantly from being tools of colonial control to mechanisms that support self-reliance and growth. Post-1991 economic liberalization, these duties have been restructured to align with the nation’s development goals.

Types of Import Duties in India

• Basic Customs Duty (BCD Tax): Levied on imported goods with varying rates. Example: Electronics businesses often face this duty when importing components from abroad.
• Countervailing Duty (CVD): Neutralizes advantages of imported over domestic products. Example: A local furniture business benefits when a foreign-made luxury chair has an added CVD, making it pricier than domestic options.
• Special Additional Duty (SAD): To balance the VAT. Example: Importers of consumer goods like cosmetics might encounter SAD, adding to their cost considerations.
• Protective Duty: Defends domestic industries against foreign competition. Example: Steel manufacturers in India benefit when protective duties are imposed on cheap steel imports.
• Anti-dumping Duty: Counters unfair pricing by international competitors. Example: Tire manufacturers in India might get relief if cheaper, sub-standard tires from another country face anti-dumping duties.
• Safeguard Duty: Introduced during a surge in imports harmful to domestic producers. Example: Solar panel manufacturers in India saw the imposition of safeguard duty on imported panels to protect their interests.

Calculation of Import Duties

Calculating import duties in India requires consideration of various components and can be complex due to the multiple layers of duties and charges. The actual duty rate varies based on the specific product, its Harmonized System (HS) code, and the country of origin. Let’s break down the general steps:

1. Determine the Assessable Value (AV):
   • The AV is the value of the product upon which the customs duty will be calculated. It is typically based on the Cost, Insurance, and Freight (CIF) value for imports: Assessable Value (AV)=Cost of the product+Insurance+Freight Assessable Value (AV)=Cost of the product+Insurance+Freight
2. Calculate Basic Customs Duty (BCD):
   • The BCD is applied to the assessable value: BCD Amount=Assessable Value (AV)×BCD RateBCD Amount=Assessable Value (AV)×BCD Rate
3. Calculate Integrated Goods and Service Tax (IGST):
   • IGST replaces the earlier Countervailing Duties (CVD) and Special Additional Duties (SAD) under the GST regime. It is applied on the combined value of the product’s CIF value and the BCD: IGST Amount=(Assessable Value (AV)+BCD Amount)×IGST RateIGST Amount=(Assessable Value (AV)+BCD Amount)×IGST Rate
4. Consider Additional Charges:
   • Anti-dumping Duty: If applicable to the specific product and country of origin, this is calculated on the assessable value or as a fixed amount per unit.
   • Safeguard Duty: If applicable, it is levied as a percentage on the assessable value or CIF value.
   • Social Welfare Surcharge (SWS): This is often levied on the aggregate of customs duties (excluding GST): SWS Amount=BCD Amount×SWS RateSWS Amount=BCD Amount×SWS Rate (Note: The rate for SWS can vary, but as of my last update in January 2022, it was typically 10% on the BCD.)
5. Summing it Up:
   • The total customs duty payable will be the sum of BCD tax, IGST, any other specific duties (e.g., anti-dumping or safeguard, if applicable), and the SWS: Total Import Duty=BCD Amount+IGST Amount+Other Duties+SWS AmountTotal Import Duty=BCD Amount+IGST Amount+Other Duties+SWS Amount

Export Duties in India

Export duties are taxes levied by a country on goods and services that are shipped out of its borders. In the context of India, export duties are not as prevalent as import duties, given that the country aims to promote exports to boost its economy. However, there are a few goods on which export duties are imposed, mainly to conserve domestic resources, meet domestic demand, or achieve some other policy objectives.

Read more about:- Export Duty Calculation

Types of export duties in India are as follows:

• Ad Valorem Duty: This is calculated as a percentage of the value of the goods. For instance, if a 10% ad valorem duty is levied on an item valued at INR 100, the duty payable would be INR 10.
  
• Specific Duty: This is a fixed amount of duty levied on a per-unit basis, regardless of the value of the goods. For example, if a specific duty of INR 20 is levied on each unit of a product, then for 10 units, the duty payable would be INR 200.
  
• Compound Duty: This is a combination of ad valorem and specific duties. It has components of both value and quantity. For instance, a compound duty might entail a 5% ad valorem duty plus INR 10 per unit.

Purpose and Rationale Behind Import and Export Duties

• Protection: Sheltering domestic industries, especially newcomers.
• Trade Balancing: Regulating trade deficits through duty adjustments.
• Revenue Generation: Contributing substantially to government coffers.
• Fair Trade: Anti-dumping duties ensure fair competition.
• Trade Regulation: Duty structures guide import/export based on national goals.

Free Trade Agreements (FTAs) & Concessions

India’s FTAs, like those with ASEAN, Japan, and South Korea, can drastically reshape the duty scene.
Example: Textile businesses might benefit from reduced duties when exporting to FTA partners.

Impact of GST on Import and Export Duties

Post-2017’s GST introduction, imports come under Integrated GST (IGST), streamlining credit flows and diminishing cascading tax effects.

For more detail read our blog on:- Impact of GST on Import and Export Duties

Exemptions and Relaxations

Goods critical for public welfare, national interests, or diplomacy may be exempted. Example: Pharmaceutical companies importing specific life-saving drugs might get duty waivers.

For more details explore our blog on:-
Export Duty Exemptions
Import Duty Exemptions and Special Cases

Recent Changes and Updates (as of 2024)

Export

• The Advance Authorization scheme has been extended to allow exporters to import inputs up to 300% of the physical export and/or FOR value of deemed export in preceding financial year or Rs. 1 Crore, whichever is higher.
• Exporters with export performance in at least preceding two financial years are now allowed to import inputs on the basis of SION (or ad-hoc norms).
• Manufacturers who are three star or above will be enabled to self-certify their goods as originating from India.

Import

• The number of customs duty rates on goods except textiles has been reduced from 21 to 13.
• Import duty on camera lens for mobile phone has been reduced from 2.5% to zero.
• Import duty on parts for the manufacture of open cells of TV panels has been reduced from 5% to 2.5%.
• Import duty on seeds for use in the manufacture of rough lab-grown diamonds has been reduced from 5% to zero.
• Import duty on naphtha has been reduced from 2.5% to 2%.
• Import duty on electric kitchen chimneys has been increased from 7.5% to 15%.
• Import duty on silver dore, bars and articles has been increased to align them with that on gold and platinum.
• Basic customs duty rate on compounded rubber has been increased from 10% to 25% or Rs 30/kg, whichever is lower, on par with that on natural rubber other than latex.

Note: The above changes are effective from 1 April 2024.

Conclusion

Import and export duties, intricate as they are, form India’s trade policy’s backbone, mirroring the nation’s aspirations, challenges, and strategies on the global stage.

References and Further Reading

India’s Customs Department website
Import Duty Exemptions and Special Cases
List of Goods & Services Exempted Under GST