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Customs Duty and its Various Types and Role in India
Customs Duty by definition
There are various taxes levied by the government; amongst them, Customs duty is levied on goods imported into India, as well as on certain goods exported from India. It is an indirect tax. Unlike most other indirect taxes, customs duty was not subsumed by GST — it continues to apply on imports even today, with IGST levied on imports in addition to the basic customs duty. All countries levy taxes on goods imported or exported. It helps the government to raise revenue and at the same time protect domestic industries. The taxes on imported goods are termed import duty or customs duty on imports, whereas taxes on exported goods are known as export duty. Customs duties are levied based on the value of goods, weights, dimensions and other relevant criteria.
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Customs duty in India (Custom India)
Under the Customs Act, 1962, the Government of India is authorised to levy duty on exported and imported goods. It can also prohibit the import or export of goods and can impose a penalty if anyone violates the customs procedures. The Central Board of Indirect Taxes and Customs (CBIC) — renamed from the Central Board of Excise and Customs in 2018 — under the Department of Revenue of the Ministry of Finance, handles all the matters related to customs duty. It is the agency in India responsible for customs, central excise (now limited mainly to petroleum products and tobacco, with service tax having been replaced by GST), central GST and narcotics matters in India.
Irrespective of the belongingness of the goods the Customs Duty can levy tax on goods as per Section 12, of the Customs Duty Act, 1962.
Under Section 2(22), goods includes the following
- Stores
- Vessels, aircraft, and vehicles
- Baggage
- Currency and negotiable instruments
- Other moveable property
Types of Customs Duties in India
Under the Second Schedule, the Customes Duty is not levied on all the products imported/exported. For instance – tax is not levied on life-saving drugs or equipment, food grains or fertilizers.
Depending on the purpose and value of the goods Customs Duty is divided as follows
Basics customs duty: Basic customs duty is a duty which is imposed on the goods importing India. It may be at the standard rate or at the preferential rate. All goods importing India are chargeable to Basic Customs Duty under the Customs Act, 1962, and they are known as customs import. The rates of this duty are indicated in the first schedule of the Customs Tariff Act, 1975.
Countervailing duty (CVD): A duty equivalent to the amount of subsidy granted by the government is imposed on such subsidized good which is known as countervailing duty. These duties are also known as anti-subsidy duties. They are imposed to neutralize the negative effect of subsidies, as goods can be imported and exported at a price lower than the original price based on the subsidy given by the government.
Additional customs duty / IGST on imports: Before GST, an additional customs duty (CVD) and a special additional duty (SAD) were imposed on imported goods to equalise imports with local taxes like excise duty and VAT. Since 1st July 2017, these have been replaced by Integrated GST (IGST), which is levied on imports at the rate applicable to the goods in India, calculated on the assessable value plus basic customs duty (plus GST compensation cess, where applicable).
Safeguard duty: It’s a duty which is imposed to safeguard the interest of the local domestic industries so that no harm or loss is faced by the domestic producers and their productivity. It is calculated on the basis of loss suffered by the local industries.
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Anti Dumping Duty: It’s a duty which occurs when a manufacturer exports a product to another country at a price rate either below the price rate in his/her home market or below its cost of production. The Purpose of this duty is to increase the foreign share or sometimes to expose off their excess stock. In order to avoid such dumping, the Central government imposes an anti-dumping duty under section 9A of the Customs Tariff Act, 1975, if goods are sold at a value less than the normal value.
Social Welfare Surcharge: The earlier education cess (2%) and secondary and higher education cess (1%) on imports were replaced in Budget 2018 by the Social Welfare Surcharge, generally levied at 10% of the aggregate customs duties. No surcharge is levied if the goods are fully exempted from duty or are cleared without payment of duty under the prescribed procedure. An Agriculture Infrastructure and Development Cess (AIDC) also applies on specified imported goods.
National calamity contingent duty: National calamity contingent duty is a duty which is imposed on goods like tobacco, pan masala or any other good which is injurious to health. The rate of tax under this duty varies from 10% to 45% and different rates are applicable to different situations.
Protective duties: It is a tariff which is formulated with the aim of protecting domestic industries or domestic producers. Protective custom duty can be imposed at the rate recommended u/s 6 of the Customs Tariff Act. It is valid till the date prescribed in the notification.
Objectives of Customs Duty
The objectives of Customs Duty in India are as follows
- To conserve foreign exchange by restricting imports
- To shield the domestic industries from foreign competition that restricts the import of selected goods and services, import quotas, import licensing, and an outright import ban.
- Disallowing exports and imports of goods for achieving the policy objectives of the government.
- Balancing or controlling exports.
- Disallowing the smuggling of goods.
- It facilitates implementation of laws relating to the Foreign Exchange Management Act (FEMA), Foreign Trade (Development and Regulation) Act, Conservation of Foreign Exchange and Prevention of Smuggling Activities Act etc.
- To regulate foreign exchange.
- It is also concerned to improve the domestic productivity, to facilitate exports.
How to calculate Custom Duty?
An individual can calculate customs duty with the help of customs duty calculator on ICEGATE Portal. For that, you must know the CTH code of the good which you are planning to import. The CTH code can be as minimum as 2 digits or as maximum as 8 digits. After filing the column of CTH, you should fill the description box.
The Description should be less than 30 characters and then select the country of origin for anti-dumping and preferential duty, it is optional to select the country of origin. After filling all the necessary details click on the “search” button and then you will see a list of goods that match your search criteria. Select the relevant list and you will be able to access a chart with all information related to the customs duties on the desired item. This is a dynamic chart where you can enter the values to check the exact custom duty which you are liable to pay.
Custom duty rates
Duty rates in India can be Ad-Valorem (as a percentage of value) or specific (rupees per unit). Basic customs duty varies from 0% to 150% depending on the goods, with most industrial goods attracting rates in the range of 7.5% to 10%. There are also some goods which are exempted from Customs duty like blood, body parts or body organs for medical use.
Other levies that apply on imports today include
- IGST – at the GST rate applicable to the goods (mainly 5% or 18%, or 40% for select sin/luxury goods), on assessable value + basic customs duty + other duties
- Social Welfare Surcharge – generally 10% of the basic customs duty
- GST Compensation Cess – on specified goods such as certain tobacco products and motor vehicles, pending its phase-out
- Agriculture Infrastructure and Development Cess (AIDC) – on specified goods such as gold, silver and certain fuels and agricultural products
- Anti-dumping duty / safeguard duty – where specifically notified for particular goods and countries.
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File your Custom Duty Online
You can file your Customs duty online from Indian Customs Electronic Commerce/Electronic data interchange (EC/EDI) Gateway (ICEGATE). This portal allows e-filing services to the trade and cargo services and to other clients of customs development. ICEGATE offers services like shipping bill, electronic filing of Bill of Entry. From ICEGATE portal shipping and Airlines, agents can file manifests, while cargo logistics and custodians are able to interact with customs EDI for logistics and cargo related information.
Further, it also offers the following
- Document tracking
- E-payment
- Online registration for Intellectual Property Rights(IPR)
- Verification of DEPB/EPCG/DES Licenses
- IE code status
Steps for Customs duty Online Payment
Customs duties can be paid online by following the steps given below
- Step1: Open the ICEGATE e-payment portal.
- Step2: Enter import/export code. You need to enter this carefully as this is an important field
- Step3: After entering the import/export code, click on the e-payment option.
- Step4: Click the e-payment option, you will see all the unpaid challans in your name.
- Step5: Select the challan you want to pay and after that select the bank or payment method.
- Step6: Entering the details and you will be directed to a particular payment gateway.
- Step7: Make the payment and it will redirect you to ICEGATE Portal
- Step8: Click the Print option and save the payment copy.
To conclude, Customs duty is an indirect tax which is levied on imported goods to protect domestic products and producers from unfair foreign competition, and it continues to apply alongside GST — imports attract basic customs duty plus IGST (and applicable cesses). It also helps to increase the revenue of the government. You can calculate your customs duty via the ICEGATE portal and check the rate of customs duty levied on every product online. In short, it is a government measure to regulate the import and export of goods in India.
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