Custom duty refers
to the tax imposed on goods when it crosses international borders. It is a tax
levied by the government on the import or export of goods. Companies involved
in the import or export of products need to follow the Custom duty regulations.
India’s levy custom duties both on imported and exported products. Import
custom duty is the custom duties levied on imported products, while export
custom duty is a customs duty levied on
export products. Export custom duties are usually very low to improve
competitiveness in the export market. Import duties are a major revenue earner
for the government.
government collects custom duty because:-
- Restricting imports to preserve foreign exchange.
- It ensures that commodities entering and leaving the
country are not over or under invoiced.
- Protect the Indian industry from undue
- Prohibiting the imports and export of goods that are
a threat to country security or against the laws of the country.
- Regulate exports.
- Prevent smuggling.
- To help regulate laws relating to the Foreign Trade
Act, Foreign Exchange Regulation Act, Conservation of Foreign Exchange, and
Prevention of Smuggling.
- The information collected at custom ports is used by
the government to frame policy decisions and is also used by international
traders to formulate their business policy.
Indian Custom duty
is charged on almost all goods imported into the county. We can categorize the
types of customs duty levied by the government of India as:-
- Basic custom duty (BCT) – All goods imported into
India have to pay customs duty as per the provisions in the Customs Act, 1962.
The basic custom duties are part of the Customs Tariff Act, 1975 and are
changed under Finance acts. The duty is based on a percentage of the value of
the product or a special rate. The central government can reduce, increase, or
exempt goods from BCT.
- Countervailing Duty (CVD) is levied as additional
duty on goods imported into the country. The central government imposes the CVD
when a country subsidizes the exporters exporting goods to India. The amount
levied is equivalent to the subsidy they enjoy.
- Additional Custom duty or special CVD is imposed on
products to equalize imported commodities with the local duties imposed on
domestic products. This tax ensures that the imported commodity on equalized to
the product in India. This encourages fair trade and competition practices.
- Safeguard Duty is charged to ensure that the local
industry is not harmed. It is calculated based on the loss suffered by the
- Anti-Dumping Duty is charged to ensure large
corporations do not flood the domestic market with low priced exported
products. Such dumping can kill local industries. To prevent dumping, the
Central Government can impose an anti-dumping duty. These duties are permitted
under the WTO but can only be levied when “like articles” are being
manufactured in India.
- National calamity contingent duty is imposed under
section 129 in the financial act. The tax is imposed on goods that are harmful
to our health such as tobacco, pan masala, etc.
- Educational Cess on custom duty is applied at a
prescribed rate on the aggregate of custom duty excluding safeguard duty,
countervailing duty, and Antidumping Duty.
- Protective duty was established as per the provision
of the Tariff Act 1951. The commission can make recommendations and the
Government of India feels that there is a need to protect the interest of the
Indian industry. Protective duty is as per the rates recommended under section 6
of the Customs Tariff Act.
- Export duties are charged under the Customs Act 1962
that goods exported from the country are charged an export duty. The duty
charged on the product is given in the Customs Act of 1975 is changed with a
Financial Act. The Government of India has special powers to change the rates
on export products and charge special duties depending on circumstances.
- Cesses are levied on specific products of export
such as coffee, coir, lac, mica, marine products, spices, iron ore, oil cake,
animal feeds, and turmeric. The cesses are collected as a part of Custom Duties
and are passed on to the agencies that administer the said commodity.
Service Tax or GST was implemented in 2017. GST is an indirect tax and
is a tariff charged on the manufacture, sale, and consumption of goods. This
tax has replaced many financial taxes that were previously charged in the
country such as Central Excise Tax, VAT, Service Tax, Sales Tax, and entry
tax. The Custom duty after GST taxes the Integrated Goods and Service Tax (IGST)
substituted Countervailing Duty (CVD) and Addition Custom Duty. The basic
customs duty remains. The new system includes:-
- Cess (Educational Cess+ higher education)
- Integrated Goods and Service Tax (IGST)
- Landing Charge (LC)
Customs duty in
India is calculated either on a specific or on a proportional basis. The
customs duty of the product depends on the valuation, dimension, weight,
The value of
the goods is based on the Customs Valuation Rules 2007. If quantifiable data is
unavailable, then the valuation is done on the following basis:-
- The comparative Value Method compares the product
with a transactional value of items of a similar nature (Rule 4 & Rule 5).
- The deductive Rule Method uses the sale price in the
importing country (Rule 7).
- The comparative Value Method uses cost related to
the fabrication, raw material, and the profit margin in the production country
- The Fallback Method is based on previous methods
with a higher degree of flexibility (Rule 9).
Users can pay
custom Duty online through ICEGATE or Indian Custom Electronic
Commerce/Electronic Data Exchange (ED or EDI) Gate. Through ICEGATE, traders
can fill the bill of entry and shipping bills through Email, Web upload or FTP.
Airline and shipping agents can file their manifest. The payment of custom duty
in India has become very simple. E-Challan and payment can be made simply
through the website. Custom Calculators are available online help you calculate
the correct customs duty.
In the last few
years India has taken major steps in taxation reforms though digitalization.
The Central Board of Indirect taxes and Customs has launched e-Sanchits. The
website allows users to file their returns online. Registered ICEGATE users can
file returns using e-Sanchit link.
Hardcopies uploaded during filing need not be produced during filing.
The Government of India hopes to improve the speed of clearing documents.
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