All about Customs Duty in India: Types, Rates, etc.

In international trade, customs duty plays a pivotal role in regulating the movement of goods across borders. In India, customs duty is a significant aspect of trade policy, impacting imports and exports. This blog aims to provide a comprehensive overview of customs duty in India, covering its types, customs duty rates, and other essential aspects.

What is Custom Duty?

Customs duty is a tax imposed on goods transported across international borders. Its purpose is to regulate the movement of goods, safeguarding each nation’s economy, jobs, environment, and residents. The duty rate for each item is determined based on factors like its origin and composition. Items brought into India for the first time must be declared according to customs rules, including purchases made abroad and gifts received from outside India.

Types of Customs Duty

Customs duties are imposed on virtually all imported goods. In contrast, export duties apply to specific items listed in the Second Schedule. However, certain items such as lifesaving drugs/equipment, fertilisers, and food grains are exempt from import duties. Import duties are categorised into various types.

Basic Customs Duty (BCD): It applies to all goods imported into India. The actual fee varies based on factors such as the type of goods, origin of import, and material composition. Certain items, like lifesaving drugs, are exempt from Basic Customs Duty (BCD)

Countervailing Duty (CVD): This duty is applicable to goods that have received tax benefits or subsidies in the country of manufacture, aiming to prevent these goods from having an undue advantage over locally produced goods.

Additional Customs Duty: Commonly known as countervailing duty (CVD), this duty is imposed on imported goods under section 3 of the Customs Tariff Act, 1975. It is equivalent to the Central Excise duty applicable to similar goods produced or manufactured in India.

Protective Duty: This duty is imposed to protect the domestic industry from imports at rates recommended by the Tariff Commissioner.

Anti-dumping Duty: It is imposed to prevent dumping, an unfair international trade practice where goods are sold below market value, thereby causing harm to local industry.

Education Cess on Custom Duty: The education cess, levied at a rate of 2%, and the secondary and higher education cess, levied at a rate of 1%, are calculated based on the total customs duty. These funds are utilised to develop the education sector in India.

Rates of Customs Duty

The customs duty rates vary depending on the type of goods, their origin, and other factors. The government periodically revises these rates to align with trade policy objectives, economic conditions, and international agreements.

Calculating Custom Duty in India

Customs duties are determined on a specific or ad valorem basis, meaning they are calculated based on the value of goods. This value is established according to the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. If there are uncertainties regarding the accuracy of the goods’ value, the following methods are employed for valuation.

  • Rule 4 & 5: Comparative value method, comparing the transaction value of identical or similar items
  • Rule 7: Deductive value method, utilising the sale price of the goods in the importing country
  • Rule 8: Computed value method, considering costs associated with materials, fabrication, and profit in the country of production
  • Rule 9: The fallback method, combining elements of the previous methods with increased flexibility

To Conclude

Customs duty is a crucial component of India’s trade policy, influencing the flow of goods across borders and contributing to economic development.

Understanding customs duty types, customs duty rates, and valuation methods is essential for international trade businesses and individuals importing goods into India.

By staying informed about customs duty regulations, stakeholders can more effectively navigate the complexities of international trade and ensure compliance with applicable laws.

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