Customs duty is a fundamental aspect of international trade, ensuring regulation and protection for domestic industries. In India, customs duty is imposed on the import and export of goods as per the provisions of the Customs Act, 1962: Everything you need to know
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Customs duty is a tax levied on the import or export of goods across the international borders of a country. It is one of the sources of revenue for the government and serves as a means of regulating the trade of goods. It also serves to protect domestic industries from cheaper foreign competition. This article aims to provide a detailed overview of the various types of customs duties in India, highlighting their significance and impact on the economy.
1) Types of Customs Duty in India
Customs duty is a tax that is imposed on goods that are imported into or exported from India. The objective of customs duty is to protect the nation's economy, environment, jobs, and security by regulating the movement of goods across the international borders. Customs duty also helps to prevent the smuggling of prohibited and restricted goods.
The rate of customs duty depends on various factors, such as the origin, value, and nature of the goods. The Customs Act of 1962 and the Customs Tariff Act of 1975 are the main laws that govern customs duty in India. The Central Board of Indirect Taxes and Customs (CBIC) is the authority that administers and collects customs duty in India.
a) Basic Customs Duty (BCD)
The Basic Customs Duty serves as the primary form of import duty levied on goods entering India. It is calculated based on the assessable value of the imported goods, which includes the cost, freight, insurance, and other charges. The rates for basic customs duty are specified in the Customs Tariff Act, which is regularly updated by the government. The aim of this duty is to safeguard domestic industries, promote self-sufficiency, and generate revenue for the government. The rate of BCD varies depending on the nature and origin of the goods. For example, the BCD for electronic goods is 20%, automotive goods is 15%, while the BCD for agricultural products is 10%.
b) Agriculture Infrastructure and Development Cess (AIDC)
Agriculture Infrastructure and Development Cess (AIDC) is a cess imposed on goods imported into India. It was introduced in the 2021-22 budget as a way to raise revenue for the government and to fund infrastructure development in the agricultural sector.
The AIDC is levied on the value of imported goods. The goods that are subject to the AIDC are listed in the first schedule to the Customs Tariff Act, 1975. These goods include agricultural products, fertilizers, pesticides, and agricultural machinery.
The revenue from the AIDC is used to fund a number of infrastructure projects in the agricultural sector, such as the construction of warehouses, cold storage facilities, and irrigation canals. The AIDC is also used to provide financial assistance to farmers and to promote agricultural research.
Note: As per Public Notice No 09/2021/3698-37/2 dated 05/02/2021 the rate of AIDC cannot be exceeded the rate of Customs Duty.
c) Custom Health CESS (CHCESS)
Custom Health Cess (CHCESS) is an additional duty of customs that is levied on the import of medical devices. It was introduced in the 2020-21 budget as a way to raise revenue for the government and to fund health infrastructure in aspirational districts.
The CHCESS is levied at a rate of 5% on the value of imported medical devices. The goods that are subject to the CHCESS are listed in the fourth schedule to the Customs Tariff Act, 1975. These goods include medical equipment, implants, and consumables.
The revenue from the CHCESS is used to fund a number of health infrastructure projects in aspirational districts, such as the construction of hospitals, primary health centers, and diagnostic centers. The CHCESS is also used to provide financial assistance to patients who are unable to afford medical treatment.
The CHCESS is a relatively new cess, and it is still too early to say what its impact will be on the Indian economy. However, the government hopes that the CHCESS will help to improve access to healthcare in aspirational districts and to make India a healthier nation.
Here are some of the goods that are subject to the CHCESS:
i) Medical equipment: This includes X-ray machines, MRI machines, and surgical equipment.
Implants: This includes pacemakers, artificial joints, and intraocular lenses.
ii) Consumables: This includes syringes, needles, and bandages.
The CHCESS is a separate levy from customs duty. This means that the importer will have to pay both the CHCESS and the customs duty on the imported goods. The CHCESS is not a deductible expense for the importer.
The CHCESS is payable at the time of import. The importer must declare the CHCESS amount on the import declaration form. The customs authorities will then collect the CHCESS amount from the importer.
The CHCESS is a temporary measure. The government has said that the CHCESS will be abolished once the health infrastructure projects in aspirational districts are completed.
d) Excise AIDC (EAIDC)
Excise AIDC (EAIDC) is an additional duty of excise that is levied on petrol and high-speed diesel. It was introduced in the 2021-22 budget as a way to raise revenue for the government and to fund infrastructure development in the agricultural sector.
The EAIDC is levied at a rate of 25 paise per liter on petrol and 40 paise per liter on high-speed diesel. The revenue from the EAIDC is used to fund a number of infrastructure projects in the agricultural sector, such as the construction of warehouses, cold storage facilities, and irrigation canals. The EAIDC is also used to provide financial assistance to farmers and to promote agricultural research.
The EAIDC is a separate levy from excise duty. This means that the importer will have to pay both the EAIDC and the excise duty on the imported goods. The EAIDC is not a deductible expense for the importer.
The EAIDC is payable at the time of import. The importer must declare the EAIDC amount on the import declaration form. The customs authorities will then collect the EAIDC amount from the importer.
The EAIDC is a temporary measure. The government has said that the EAIDC will be abolished once the infrastructure projects in the agricultural sector are completed.
e) Social Welfare Surcharge (SWC)
Social Welfare Surcharge (SWC) is a surcharge that is levied on customs duty. The SWS rate is 10%. The SWS is used to fund social welfare programs, such as education and healthcare.
The SWS was introduced in the 2018-19 budget as a way to raise revenue for the government and to fund social welfare programs. The SWS is levied on all imported goods, except for goods that are exempted from customs duty.
The SWS is a separate levy from customs duty. This means that the importer will have to pay both the SWS and the customs duty on the imported goods. The SWS is not a deductible expense for the importer.
The SWS is payable at the time of import. The importer must declare the SWS amount on the import declaration form. The customs authorities will then collect the SWS amount from the importer.
The SWS is a temporary measure. The government has said that the SWS will be abolished once the social welfare programs are fully funded.
f) Integrated Goods and Services Tax (IGST Levy)
IGST Levy on Import is the Integrated Goods and Services Tax (IGST) that is levied on imports into India. IGST is a combination of the central GST (CGST) and the state GST (SGST).
The IGST rate on imports is 12% for most goods, but it can be higher for certain items. The IGST is payable at the time of import. The importer must declare the IGST amount on the import declaration form. The customs authorities will then collect the IGST amount from the importer.
The IGST is a destination-based tax. This means that the IGST is levied on the import of goods into India, regardless of where the goods are produced.
The IGST is a complex tax, and there are a number of exceptions and special rules that apply. It is important to consult with a tax advisor to ensure that you are complying with the IGST rules.
g) Compensation Cess (CC)
Compensation Cess (CC) is a cess levied on imports into India. It was introduced in the 2017-18 budget as a way to compensate the manufacturing-heavy states for any possible losses due to the consumption-based nature of GST.
The CC rate is levied on a value determined under section 15 of the Central Goods and Services Tax Act, 2017. The CC is payable at the time of import. The importer must declare the CC amount on the import declaration form. The customs authorities will then collect the CC amount from the importer.
The CC is a temporary measure. The government has said that the CC will be abolished once the revenue losses to the manufacturing-heavy states are compensated.
2) Other Customs Duties
a) Anti-Dumping Duty (ADD)
Anti-dumping duty (ADD) is a type of tariff that is imposed on imported goods that are sold at a price below their fair market value. The purpose of an anti-dumping duty is to protect domestic industries from unfair competition from foreign exporters.
Dumping occurs when a foreign exporter sells a product in an importing country at a price that is below its fair market value. This can happen for a number of reasons, such as when the exporter is trying to gain market share in the importing country or when the exporter is trying to drive domestic producers out of business.
When a government determines that dumping is occurring, it can impose an anti-dumping duty on the imported product. The anti-dumping duty is designed to offset the unfair advantage that the foreign exporter has due to the lower price.
The amount of the anti-dumping duty is calculated as the difference between the fair market value of the product and the export price. The fair market value is determined by comparing the price of the product in the exporting country to the price of similar products in other countries.
Anti-dumping duties are controversial because they can raise prices for consumers and can discourage trade. However, they are also seen as a necessary tool to protect domestic industries from unfair competition.
b) Safeguard Duty
A safeguard duty is a type of tariff that is imposed on imported goods to protect domestic industries from sudden surges in imports. The purpose of a safeguard duty is to give domestic industries time to adjust to the increased competition and to prevent them from being driven out of business.
In India, safeguard duties are governed by the Customs Tariff (Safeguard Measures) Rules, 2017. These rules set out the procedures for the imposition of safeguard duties, the calculation of the duty amount, and the duration of the duty.
To be eligible for a safeguard duty, the domestic industry must demonstrate that it has suffered or is likely to suffer serious injury as a result of the surge in imports. The injury must be caused by the increased imports, and it must not be due to other factors, such as changes in demand or technology.
The amount of the safeguard duty is calculated as a percentage of the value of the imported goods. The percentage is determined by the government based on the level of injury to the domestic industry.
Safeguard duties are typically imposed for a period of two years. However, they can be extended for a further two years if the government determines that the domestic industry is still not able to compete with the imported goods.
Safeguard duties are controversial because they can raise prices for consumers and can discourage trade. However, they are also seen as a necessary tool to protect domestic industries from sudden surges in imports.
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3) Customs Duty Calculation Methods
To calculate customs duty on imported goods, one has to follow the rules laid down in the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. These rules prescribe various methods to determine the value of imported goods, such as:
a) Transaction value method: This is the primary method that uses the price paid or payable for the imported goods as the basis of valuation.
b) Comparative value method: This method compares the transaction value of identical or similar goods imported at or about the same time.
c) Deductive value method: This method uses the sale price of the imported goods or similar goods in the importing country after making certain adjustments.
d) Computed value method: This method uses the costs related to materials, fabrication, and profit in the country of production as the basis of valuation.
e) Fallback method: This method allows for a flexible application of any of the previous methods with reasonable modifications.
Importer can pay customs duty online through the e-payment portal of ICEGATE (Indian Customs Electronic Gateway) by logging in with their Importer Exporter Code (IEC) and selecting the challan that they wish to pay.
Conclusion
Customs duties in India serve as crucial instruments for protecting domestic industries, regulating international trade, and generating revenue for the government. The basic customs duty forms the foundation, while other duties like AIDC, IGST Levy, ADD & CC contribute to maintaining fair competition, preventing unfair trade practices, and supporting agriculture. Understanding the different types of customs duties is essential for importers, exporters, and businesses engaged in international trade. By navigating the complexities of customs duty, stakeholders can make informed decisions that drive economic growth and contribute to India's overall development.
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