Custom duty is a type of tax that the Indian government charges on goods that come into or go out of the country. It is a way for the government to earn revenue and also to regulate the flow of goods across the country’s borders. There are different types of customs duties that apply depending on what kind of goods are being imported or exported. Understanding these duties is important for anyone involved in international trade, whether they are a business or an individual.
What is Custom Duty?
Custom duty is a tax that is imposed on goods when they move across international borders. In India, this tax is mainly charged on imports, which means when goods come into India from other countries. However, in some cases, it can also be charged on exports, which is when goods are sent from India to other countries. The main purpose of custom duty is to protect local industries from foreign competition, to control the import and export of certain goods, and to raise revenue for the government.
Custom duty in India is regulated by the Central Government through the Central Board of Indirect Taxes and Customs (CBIC). This board decides how much tax should be charged on different goods. Some goods, like life-saving medicines, fertilizers, and food grains, are either exempt from custom duty or charged at a lower rate to make them more affordable.
Types of Custom Duty in India
In India, there are several types of custom duties that may apply when goods are imported or exported. Here’s a simple breakdown of the main types:
1. Basic Customs Duty (BCD)
Basic Customs Duty is the standard tax that applies to most goods that are imported into India. The rate of this duty can vary depending on the type of goods, but it usually ranges from 5% to 40% of the value of the goods. For example, if you are importing a product worth ₹1000, and the BCD is 10%, you will have to pay ₹100 as tax.
2. Integrated Goods and Services Tax (IGST)
When goods are imported into India, IGST is also charged along with the Basic Customs Duty. The rate of IGST depends on the type of goods and is determined based on the Harmonized System of Nomenclature (HSN) code. The IGST is usually the same as the GST that would apply if the goods were sold within India. For instance, if a product attracts 18% GST within India, the same rate would apply as IGST when it is imported.
3. GST Compensation Cess
This is an additional tax that is collected to compensate Indian states for any loss of revenue due to the implementation of GST (Goods and Services Tax). The GST Compensation Cess is applied only to certain goods, like luxury items or goods that are considered harmful, such as tobacco. This cess is calculated as a percentage of the IGST value and is intended to be in effect for a limited period, until the states’ revenue concerns are addressed.
4. Education Cess and Higher Education Cess
Education Cess is a small additional tax charged on top of the customs duty. It is typically 2% of the total customs duty amount. There is also a Higher Education Cess, which is charged at 1%. These cesses are meant to fund educational programs in India. For example, if the total customs duty on your imported goods is ₹1000, you would pay an additional ₹20 as Education Cess and ₹10 as Higher Education Cess, making it ₹1030 in total.
5. Countervailing Duty (CVD) on Subsidized Articles
Countervailing Duty (CVD) is charged on goods that have received subsidies in their country of origin. This duty is meant to level the playing field by neutralizing the advantage that the subsidized goods might have over locally produced goods. For example, if a foreign government provides financial support to its manufacturers, making their products cheaper, India may impose a CVD to ensure that Indian products are not at a disadvantage.
6. Anti-Dumping Duty
Anti-Dumping Duty is imposed when a foreign company sells its goods in India at a price lower than the market value in their own country, which is called “dumping.” This practice can harm local industries. To prevent this, India imposes Anti-Dumping Duty on such goods. The rate of this duty can be very high, ranging from 0% to 550% of the invoice value, depending on the severity of the dumping.
7. Safeguard Duty
Safeguard Duty is applied when there is a sudden increase in the import of a particular product, which could harm the local industry producing that product. This duty gives local industries time to adjust and become more competitive. For example, if there is a sudden rise in the import of a specific type of machinery, the government may impose a Safeguard Duty to protect Indian manufacturers of that machinery.
8. Social Welfare Surcharge
This is a surcharge that is calculated at 10% of the total customs duty. It is collected to fund social welfare programs in India. For instance, if the total customs duty on an imported product is ₹1000, the Social Welfare Surcharge would be ₹100, making the total tax ₹1100.
9. National Calamity Contingent Duty (NCCD)
NCCD is a tax that is levied on certain goods to raise funds for handling national calamities or emergencies. The goods on which NCCD is charged are listed in the Seventh Schedule of the Constitution of India. The rate of NCCD varies depending on the type of goods. For example, it might be charged on products like tobacco, where the rate could be quite high.
Also Read: Different Types of Customs Duty in India Complete List
Types of Custom Duty Now Subsumed Under GST
Before the implementation of GST in 2017, there were several other types of customs duties that have now been subsumed under IGST. These include:
1. Additional Duties of Customs (Special CVD)
This duty was similar to the excise duty charged on goods produced within India. It was applied to make imported goods cost the same as locally produced goods by adding a tax equivalent to the excise duty. This has now been merged into IGST.
2. Protective Duties
Protective Duties were similar to Anti-Dumping Duty and Safeguard Duty. They were imposed to protect certain industries in India from foreign competition. With the implementation of GST, this duty has also been subsumed into IGST.
How is Customs Duty Calculated?
Calculating customs duty involves adding up all the different types of taxes and duties that apply to the imported goods. Here’s a simple example to help you understand:
Let’s say you are importing goods worth ₹1000. The Basic Customs Duty (BCD) is 10%, and IGST is 18%.
Basic Customs Duty: 10% of ₹1000 = ₹100
IGST: 18% of ₹1000 = ₹180
Social Welfare Surcharge: 10% of ₹100 (BCD) = ₹10
Education Cess: 2% of ₹100 (BCD) = ₹2
Higher Education Cess: 1% of ₹100 (BCD) = ₹1
Total Customs Duty = BCD + IGST + Social Welfare Surcharge + Education Cess + Higher Education Cess = ₹100 + ₹180 + ₹10 + ₹2 + ₹1 = ₹293
So, in this case, you would pay ₹293 in customs duties and taxes for importing goods worth ₹1000.
Conclusion
Custom duty is a crucial part of international trade in India, affecting both businesses and individuals who import goods. By understanding the different types of customs duties and how they are calculated, you can better prepare for the costs involved in importing goods. Whether you are a business owner or an individual bringing in goods from abroad, knowing about customs duties can help you avoid unexpected costs and ensure a smoother import process.
Also Read: Understand the Difference Between Duty and Tariff
