Customs Duty’ refers to the tax imposed on the goods when they are transported across the international borders. The objective behind levying customs duty is to safeguard each nation’s economy, jobs, environment, residents, etc., by regulating the movement of goods, especially prohibited and restrictive goods, in and out of any country.
Every good has a predefined rate of duty that is determined based on various factors, including where such good was acquired, where such goods were made, and what these goods is made of. Also, anything that you bring into India for the first time should be declared as per the customs rules. For instance, you need to declare the items purchased in a foreign country and any gifts which you acquire outside India.
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.
Types of custom duties
Customs duties are charged almost universally on every good which are imported into a country. These are divided into:
- Basic Customs Duty (BCD)
- Countervailing Duty (CVD)
- Additional Customs Duty or Special CVD
- Protective Duty,
- Anti-dumping Duty
- Education Cess on Custom Duty
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.
How to calculate custom duty in India?
Customs duties are computed on a specific or ad valorem basis. In other words, it is calculated on the value of goods. Such value is determined as per the rules laid down in the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. If there are doubts regarding the truth or accuracy of the value of goods, valuation of such item is done through the following method:
- Rule 4 & 5 – Comparative value method that compares the transaction value of identical or similar items
- Rule 7 – Deductive value method that uses sale price of such good in the importing country
- Rule 8 – Computed value method that employs costs related to materials, fabrication, and profit in the country of production
- Rule 9 – The Fallback method that is based on previous methods with an element of higher flexibility.
Payment of custom duty
- Login into the e-payment portal of ICEGATE
- Enter the import or export code or simply key in the login credentials provided by ICEGATE
- Now, click on the e-payment button
- You would be able to check all e-challans which under your name
- You could then choose the challan that you wish to pay and select the payment method and you would be then redirected to the payment gateway
- Once the payment is done, you would be redirected back to the ICEGATE portal
- Finally, click on the print button and save your payment copy.
FAQs
What are the Objectives of Customs Duty?
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.
What is the main purpose of customs duty?
- 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.
