What is Custom Duty in India?

Introduction

Custom duty is a type of indirect tax imposed by the Government of India on goods imported into or exported out of the country. It serves multiple purposes, such as regulating trade, protecting domestic industries, generating revenue, and preventing the illegal movement of goods.

India, being a major player in global trade, has a well-defined customs framework governed by the Customs Act, 1962 and administered by the Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance. Over the years, the government has modified custom duty structures to align with economic policies and international trade agreements.

This article provides a detailed explanation of what is custom duty in india, including its types, purpose, calculation, exemptions, and penalties for non-compliance.

Understanding Custom Duty

Custom duty is levied on both imports and exports, although India primarily imposes it on imports to regulate foreign trade and protect domestic manufacturers. The rate of custom duty depends on various factors such as:

• Type of goods (raw materials, finished goods, luxury items, essential commodities, etc.)
• Country of origin (as per trade agreements and tariff structures)
• Intended use (for personal use, commercial purposes, or re-export)
• Government policies (e.g., tax exemptions for certain industries)

Custom duty ensures that imported goods do not get an unfair price advantage over locally produced goods, thus promoting “Make in India” and other national economic initiatives.

Types of Custom Duty in India

The Indian government imposes several types of custom duties, depending on the nature of goods and their impact on the economy.

1. Basic Custom Duty (BCD)

This is the primary tax levied on imported goods under the Customs Tariff Act, 1975. The rates vary across product categories and are periodically revised by the government.

2. Countervailing Duty (CVD)

Countervailing Duty is imposed on imported goods that receive subsidies in their country of origin. This prevents unfair price advantages for foreign manufacturers and ensures a level playing field for Indian producers.

3. Anti-Dumping Duty

If a foreign company exports goods to India at a price lower than their normal market value, it is called dumping. To protect Indian industries, the government imposes anti-dumping duty on such goods, making them less competitive in the Indian market.

4. Safeguard Duty

Safeguard duty is imposed when a sudden increase in imports threatens domestic industries. Unlike anti-dumping duty, which targets specific countries, safeguard duty applies to all imports of a particular product, regardless of its origin.

5. Social Welfare Surcharge (SWS)

This surcharge is levied on custom duties to fund social welfare schemes. It is usually 10% of the aggregate customs duty, excluding safeguard and anti-dumping duties.

6. Integrated Goods and Services Tax (IGST) on Imports

Under the GST regime, IGST is levied on all imported goods, in addition to BCD. The IGST rate is equal to the GST rate applicable to the same goods if sold within India.

7. Agriculture Infrastructure and Development Cess (AIDC)

Introduced in the Union Budget 2021, this cess is imposed on the import of certain agricultural products, gold, and silver to improve rural infrastructure and boost agricultural productivity.

Calculation of Custom Duty

Custom duty is calculated based on the assessable value of imported goods, which includes:

• Cost of goods (C)
• Insurance charges (I)
• Freight charges (F)

This total is known as the CIF Value (Cost + Insurance + Freight).

The basic formula for calculating custom duty is:

Total Custom Duty = Basic Custom Duty + IGST + Other Applicable Duties (CVD, SWS, etc.)

Example Calculation

Assume an imported product has a CIF value of ₹1,00,000, and the following custom duties apply:

• Basic Custom Duty (BCD): 10%
• Social Welfare Surcharge (SWS): 10% on BCD
• IGST: 18%

Step-by-Step Calculation

1. BCD = 10% of ₹1,00,000 = ₹10,000
2. SWS = 10% of ₹10,000 = ₹1,000
3. Value for IGST = ₹1,00,000 + ₹10,000 + ₹1,000 = ₹1,11,000
4. IGST = 18% of ₹1,11,000 = ₹19,980

Total Custom Duty Payable:

₹10,000 (BCD) + ₹1,000 (SWS) + ₹19,980 (IGST) = ₹30,980

Exemptions and Concessions in Custom Duty

The Indian government provides exemptions and reductions in custom duty under various schemes to promote domestic industries and exports.

1. Export Promotion Capital Goods (EPCG) Scheme

Under this scheme, businesses can import capital goods at zero duty if they commit to exporting goods of equivalent value.

2. Special Economic Zones (SEZs) & Export-Oriented Units (EOUs)

Businesses operating in SEZs and EOUs enjoy custom duty exemptions on imported goods used for export production.

3. Duty Drawback Scheme

Exporters can claim a refund of custom duties paid on imported raw materials if these materials are used to manufacture exported goods.

4. Customs Duty Exemption on Essential Goods

Certain categories, such as lifesaving drugs, medical equipment, defense supplies, and renewable energy products, receive full or partial exemption from custom duty.

How to Pay Custom Duty in India?

Custom duty can be paid online through the ICEGATE (Indian Customs Electronic Gateway) portal or at designated banks. The process involves:

1. Filing a Bill of Entry – Importers must file this document with the customs department.
2. Duty Assessment – Customs officials assess the duty payable based on the declared value.
3. Payment of Custom Duty – Importers can pay via NEFT, RTGS, or at authorized banks.
4. Goods Clearance – After payment, customs authorities release the goods for domestic use or further processing.

Penalties for Non-Compliance

Failure to comply with custom duty regulations can result in serious consequences, including:

• Confiscation of Goods – Customs authorities may seize goods if duty is not paid.
• Fines & Penalties – Businesses may have to pay heavy fines for undervaluation, misdeclaration, or smuggling.
• Legal Action – Severe violations can lead to prosecution under the Customs Act, 1962.

Recent Updates on Custom Duty in India

1. Union Budget 2024 Changes

• Reduction of custom duty on electronic components to promote domestic manufacturing.
• Increase in duty on finished goods to support Make in India.

2. Stricter Rules on E-Commerce Imports

• Tighter regulations for cross-border e-commerce shipments to prevent tax evasion.

3. Increase in Agriculture Cess

• Higher duties on edible oil imports to support Indian farmers.

Conclusion

Custom duty in India is an essential taxation system that regulates international trade, protects domestic industries, and generates revenue for the government. Importers, exporters, and businesses must stay updated with custom duty structures, exemptions, and compliance requirements to avoid penalties and take advantage of concessions.

With continuous changes in government policies, trade agreements, and digitalization of customs processes, businesses engaged in global trade must stay informed and ensure full compliance with India’s customs laws to facilitate smooth and cost-effective operations.