Customs Duty in India: A Complete Guide

Sanidhya Negi / November 13, 2024

Customs duty plays a key role in international trade by impacting the cost of goods crossing borders. It helps governments regulate the flow of products, protect local industries, and ensure compliance with national laws. 

This guide explores customs duty in depth, covering the key types, their objectives, and how they impact global trade. You’ll also learn about the calculation methods used in India, as well as a practical guide to making online payments, which allows importers and exporters to navigate customs smoothly and avoid unnecessary costs.

Meaning of Customs Duty

Customs duty refers to the tax applied by a country’s government on goods crossing its borders, whether being imported or exported. Often known as import or export duty, it plays a crucial role in regulating international trade. Customs duty ensures that all goods adhere to the nation’s policies and regulations. Customs duties are collected by customs authorities, which help in controlling the inflow and outflow of products, thereby managing trade balance and revenue generation.

The objectives of customs duty extend beyond just revenue generation. One of its main aims is to protect the economy by discouraging the import of goods that could harm local industries or pose risks to public safety and environmental health. Thus, customs duty not only generates revenue but also promotes economic stability and safety within a country’s borders.

Different Types of Customs Duty

Customs duties are taxes on imported goods to manage trade and protect domestic industries. There are several types of customs duties that you should know about if you have an import-export business or are thinking of starting one. Several types of custom duty are mentioned below.

Basic Customs Duty (BCD): Basic Customs Duty is the primary tax on imports, set by the Indian Customs Tariff Act based on the type of item. As per Indian Customs Tariff Act, BCD rates usually range from 5% to 40% and depend on the item’s category and country of origin. BCD impacts the overall cost of importing goods into India.

Additional Customs Duty: Additional Customs Duty, also called Special Countervailing Duty, is a tax that is applied to balance subsidies that exporting countries provide to their products. It helps level the playing field and ensures that domestic producers are not disadvantaged.

Countervailing Duty (CVD): This duty counters foreign government subsidies on exports. When foreign producers receive subsidies, they can sell at a lower price, by creating unfair competition for local industries. CVD safeguards local businesses from this unfair advantage.

Special Additional Duty (SAD): SAD is levied on imports under the Central Excise Act and applies to the total value, including BCD and CVD. This duty shields domestic industries by offsetting the impact of low-cost imports.

Anti-Dumping Duty: When foreign goods are sold in India at prices below their value in the exporting country, anti-dumping duty is applied. This duty prevents unfair pricing practices that could damage domestic industries.

Education Cess: It is a 2% additional charge on customs duties, used to fund educational initiatives in India. Education cess basically reflects the government’s commitment to improving education standards in the country.

Protective Duties: These duties are designed to protect local industries from competition with cheaper imported goods. By increasing the cost of imports, protective duties make local products more appealing to consumers.

Safeguard Duties: Imposed under Section 8B of the Customs Tariff Act, safeguard duties are temporary measures to protect local industries from sudden increases in imports. This duty gives domestic industries time to adapt and strengthen their market position.

National Calamity Contingent Duty (NCCD): NCCD is applied to generate funds for responding to natural disasters and large-scale national emergencies. NCCD rate varies depending on the item, and ensures quick resources are available for crisis response.

What are the Objectives of Customs Duty?

Customs duties serve several important purposes that support a country’s economy, industry, and security. By understanding the objectives of customs duty, we see how it balances trade, protects industries, and generates revenue.

Generating Revenue: One of the main objectives of customs duty is to provide revenue for the government. When goods are imported or exported, taxes are collected based on their value. This income becomes vital for funding public services, infrastructure, and other community needs, helping governments meet financial goals and contribute to citizens’ welfare.

Balancing International Trade Relationships: Another objective of customs duty is to manage trade relationships with other nations. By adjusting tariffs, countries can encourage or limit the movement of specific goods. This helps maintain balanced trade partnerships and also prevents any one country’s products from dominating the market and promoting healthy trade relations.

Supporting Local Industries: Customs duty also protects local industries by making foreign goods less competitive. By taxing imported items, the government makes local products more appealing, further ensuring that the domestic industries have a fair chance to thrive. This approach promotes job security, boosts economic stability, and fosters sustainable growth within the country.

Ensuring National Security: Finally, customs duty plays a role in safeguarding national security. Certain tariffs may be applied to control the import of products critical to the country’s infrastructure and defense. Governments can secure essential supplies and maintain a stable, secure supply chain by regulating these imports.

Preventing Unfair Trade Practices: Customs duties also act as a barrier against “dumping,” where foreign goods are sold below market value in the importing country. Such practices can harm local industries by introducing unfair competition. Anti-dumping duties, a type of customs duty, aim to counter these practices.

How is Customs Duty Calculated in India?

Customs duty is primarily calculated based on the value of imported goods, as outlined by the Customs Valuation Rules, 2007. These rules help ensure fair and consistent customs charges. In cases where the value is uncertain or there are discrepancies, specific methods are used to determine the accurate value of the goods.

Rule 4 and 5: This approach compares the value of identical or similar goods previously imported. This helps to set a fair price based on market data for similar items.

Rule 7: Here, the customs value is calculated based on the sale price of the goods within the importing country, which allows adjustments based on how the item is sold domestically.

Rule 8: This method calculates the customs value based on the cost of materials, manufacturing, and profit in the country of origin. This approach helps account for the production expenses to arrive at a suitable customs value.

Rule 9: When other methods aren’t suitable, this flexible approach combines previous methods to estimate the value more accurately based on available data.

How To Make Online Payment of Customs Duty

Paying customs duty online in India is simple and efficient, thanks to digital platforms that streamline the process for importers. Here’s a step-by-step guide on how to complete an online customs duty payment. 

Access the ICEGATE Portal: You have to start by visiting ICEGATE, the official portal for Indian Customs (Indian Customs Electronic Gateway). This platform allows users to complete customs duty payments securely online.

Login or Register an Account: If you have an existing ICEGATE account, log in with your details. New users will need to register by providing basic information to create an account, allowing access to the portal’s services.

Choose the E-Payment Option: Once logged in, navigate to the e-payment section. Here, you’ll need to provide key details like the Bill of Entry number and select the bank that will process the payment.

Proceed with the Payment: Select your preferred bank from the options available, and then confirm to complete the payment transaction.

Receive a Confirmation Receipt: After the payment is successfully processed, you’ll receive a digital receipt as confirmation. This receipt is important for future records and filing purposes.

Simplify Customs Duty with Bigship

Customs duty plays a crucial role in managing international trade, protecting domestic industries, and ensuring product safety. Understanding its different types and objectives helps businesses navigate complex import/export processes effectively. 

For those looking to streamline shipments, Bigship, a prominent courier aggregator, offers support in handling customs formalities by making the entire process smoother and hassle-free. With Bigship’s expertise, you can simplify customs procedures, save on time, and avoid unexpected delays in international shipments.

Sign up with Bigship today to experience seamless exporting and enjoy a worry-free customs duty process that lets you focus on growing your business globally.

FAQs

Ques: What is the main purpose of customs duty?

Ans: Some of the main objectives of customs duty are:

• Safeguard local industries from large international competitors.
• Provide fair opportunities for businesses to grow in new markets.
• Generate revenue for the government.
• Support the growth of India’s exports.

Ques: What are the key features of customs duty?

Ans: Here are some key features of customs duty:

• It applies to goods crossing borders, whether they’re bought or sold.
• It only covers physical goods, not services.
• It includes an additional charge known as the education cess.

Ques: Can you give an example of anti-dumping duty?

Ans: A good example of an anti-dumping duty is when India placed a duty on Chinese products like aluminum and certain chemicals to protect local manufacturers from cheap imports.