What Is Customs Duty? A Complete Guide
Customs duty is a tax charged by the Indian government on goods that enter or leave the country. It applies mainly to imports and, in specific cases, to exports. The duty helps the government generate revenue, regulate international trade, and protect Indian industries. All customs duties in India are governed by the Customs Act, 1962, and managed by the Central Board of Indirect Taxes and Customs (CBIC).
Objectives of Customs Duty:
Customs duty serves several important purposes:
- Revenue Generation: It is a major source of income for the government, supporting public spending and national development.
- Protection of Domestic Industries: Higher import duties on certain products help safeguard local manufacturers from cheaper foreign goods.
- Regulation of International Trade: Customs duty helps control the movement of restricted, hazardous, or sensitive goods.
- Preventing Unfair Trade Practices: Special duties like anti-dumping or countervailing duties prevent foreign companies from dumping cheap products or using subsidies to harm Indian industries.
Types of Customs Duties in India:
India uses several categories of customs duties, each designed for a specific function.
1. Basic Customs Duty (BCD):
- The primary duty levied on imported goods.
- Can be ad valorem (percentage of value) or specific (fixed amount per unit).
- Rates depend on the product’s HSN codeas per the Customs Tariff Act, 1975.
2. Social Welfare Surcharge (SWS):
- Usually 10% of the BCD.
- Collected to fund social welfare schemes.
3. Integrated GST (IGST):
- Charged on imports at the same GST rate as domestic goods (0%–28%).
- Importers can claim input tax credit, making it tax-neutral.
4. Anti-Dumping Duty (ADD):
- Imposed when foreign goods are sold in India at unfairly low prices.
- Protects Indian manufacturers from injury.
5. Countervailing Duty (CVD):
- Charged to counter subsidies offered to foreign exporters by their governments.
6. Safeguard Duty:
- A temporary duty applied when a sudden surge in imports harms domestic industries.
7. Compensation Cess:
- Similar to GST compensation cess.
- Levied on specific products like luxury cars and tobacco.
8. Customs Handling Fee:
- A small fee (often around 1%) charged for customs clearance and administrative processes.
9. Education Cess / Higher Education Cess:
- Historically used to fund education projects.
- Though largely subsumed under GST, older references may still appear in calculations.
Duty Exemptions and Trade Facilitation Mechanisms:
The Indian government offers several schemes to reduce customs duty costs and promote exports.
1. Duty Exemption Schemes:
Certain goods or industries receive reduced or zero duty benefits through government notifications.
2. Free Trade Agreements (FTAs) & Preferential Trade Agreements (PTAs):
- India has FTAs with several countries.
- Eligible goods enjoy lower or zero customs duty rates.
- Examples include DFTP benefits for Least Developed Countries (LDCs).
3. Duty Entitlement Passbook Scheme (DEPB):
- Provides duty credit that exporters can use to pay customs duty on future imports.
4. Merchandise Exports from India Scheme (MEIS):
- Exporters receive duty credit scrips usable against BCD, CVD, and other duties.
Conclusion:
Customs duty plays a crucial role in India’s economic structure. Beyond being a tax, it:
- Protects Indian industries,
- Promotes fair competition,
- Regulates cross-border trade, and
- Supports government revenue.
With multiple duty types like BCD, IGST, ADD, and CVD, as well as benefits through FTAs and export incentive schemes, understanding customs duty is essential for traders and businesses. Staying updated with CBIC notifications and using tools like ICEGATE’s tariff enquiry system helps importers and exporters calculate accurate landed costs and remain competitive.
Disclaimer:
This content is for informational purposes only and should not be considered investment advice.
