Introduction

Custom duty in India is a type of indirect tax levied on goods that are imported into or exported out of the country. It is an essential part of international trade regulation and serves multiple purposes, including revenue generation, trade protection, and economic regulation. The Indian government imposes custom duties to regulate the movement of goods, safeguard domestic industries, and control illegal trade activities such as smuggling.

This article provides a comprehensive overview of custom duty in India, including its types, rates, calculation methods, exemptions, and recent updates.

What is Custom Duty?

Custom duty is a tax imposed by the Government of India on the import and export of goods. It is collected by the Central Board of Indirect Taxes and Customs (CBIC), which operates under the Ministry of Finance. The tax is meant to regulate trade and protect domestic businesses from unfair competition.

Custom duty ensures that foreign goods do not become cheaper than locally produced goods, which could otherwise harm domestic industries. Additionally, it serves as a major source of revenue for the government.

Types of Custom Duty in India

Custom duty in India is classified into various types, depending on the nature of the goods and the purpose of taxation. Below are the primary categories of custom duties imposed:

1. Basic Custom Duty (BCD)

Basic Custom Duty is levied on imported goods under the Customs Act, 1962. The rates of BCD vary depending on the type of goods and are specified in the First Schedule of the Customs Tariff Act, 1975.

2. Countervailing Duty (CVD)

CVD is imposed to equalize the price of imported goods with domestically manufactured goods. This duty is levied on products that benefit from subsidies in their home country, ensuring fair competition in the Indian market.

3. Anti-Dumping Duty

Anti-dumping duty is imposed on goods that are exported to India at a price lower than their normal value. This measure is taken to protect Indian manufacturers from unfair competition and dumping practices by foreign companies.

4. Safeguard Duty

Safeguard duty is levied on imported goods that are found to cause or threaten serious injury to the domestic industry. This is a temporary measure used to protect local businesses from sudden surges in imports.

5. Social Welfare Surcharge

A Social Welfare Surcharge is imposed at a rate of 10% on the aggregate of customs duties (excluding safeguard duty and anti-dumping duty). The revenue generated from this surcharge is used for social welfare schemes.

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

Under the GST regime, IGST is applicable on all imported goods in addition to basic custom duty. The IGST rate is equal to the GST rate applicable to the same goods if they were sold within India.

7. Customs Cess

The government may impose additional cesses on specific goods. For example, the Agriculture Infrastructure and Development Cess (AIDC) is levied on certain imported goods to promote rural development.

Calculation of Custom Duty

The calculation of custom duty depends on various factors, including the type of goods, their value, and applicable duty rates. The general formula for calculating custom duty is:

Total Custom Duty = Basic Custom Duty + IGST + Other Applicable Duties

For instance, if an imported product has a CIF (Cost, Insurance, and Freight) value of ₹1,00,000 and the applicable duties are as follows:

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

The calculation would be:

• BCD = 10% of ₹1,00,000 = ₹10,000
• Social Welfare Surcharge = 10% of ₹10,000 = ₹1,000
• Subtotal (Value for IGST) = ₹1,00,000 + ₹10,000 + ₹1,000 = ₹1,11,000
• IGST = 18% of ₹1,11,000 = ₹19,980
• Total Custom Duty = ₹10,000 + ₹1,000 + ₹19,980 = ₹30,980

Exemptions and Concessions in Custom Duty

The Indian government provides exemptions and concessions in custom duty under various schemes. Some of these include:

1. Export Promotion Capital Goods (EPCG) Scheme

This scheme allows import of capital goods at zero custom duty for the production of export-oriented products.

2. Special Economic Zones (SEZs)

Businesses operating in SEZs enjoy custom duty exemptions on imports meant for export production.

3. Duty Drawback Scheme

Exporters can claim a refund of custom duties paid on imported raw materials used in the production of exported goods.

4. Customs Duty Exemption on Certain Goods

Some essential goods such as lifesaving drugs, medical equipment, and defense-related products enjoy duty exemptions or reduced rates.

Recent Updates on Custom Duty in India

The government periodically revises custom duty rates and regulations to align with trade policies and economic needs. Some recent updates include:

• Union Budget 2024: Changes in custom duty rates for various electronic goods, raw materials, and components to promote domestic manufacturing.
• Make in India Initiative: Increased custom duties on finished goods while reducing duties on raw materials to boost local production.
• E-Commerce Imports: Stricter regulations on imports through online marketplaces to curb tax evasion.

How to Pay Custom Duty in India?

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

1. Filing a Bill of Entry: Importers must file this document with customs authorities.
2. Assessment of Duty: Customs officers assess the payable duty.
3. Payment of Duty: Importers can pay online through NEFT/RTGS or at designated banks.
4. Clearance of Goods: Once duty is paid, goods are cleared for release.

Penalties for Non-Compliance

Failure to comply with custom duty regulations can result in severe penalties, including:

• Confiscation of Goods: Goods can be seized if they are imported without paying the required duties.
• Fines and Penalties: Heavy fines may be imposed for undervaluation, misdeclaration, or evasion of duty.
• Legal Action: In extreme cases, legal proceedings may be initiated under the Customs Act, 1962.

Conclusion

Custom duty in India plays a vital role in regulating international trade, generating revenue, and protecting domestic industries. It is essential for importers and exporters to understand the various types of duties, calculation methods, and compliance requirements. Businesses engaged in international trade must stay updated on custom duty regulations due to continuous changes in government policies and trade agreements.

Understanding custom duty helps businesses make informed decisions, avoid penalties, and take advantage of available exemptions and concessions. Whether you are an importer, exporter, or simply a consumer purchasing international products, being aware of custom duty regulations can help you navigate the complexities of global trade efficiently.