Table of Contents
Introduction
Custom duty is a type of indirect tax levied on goods imported into or exported from India, serving as a key revenue source for the government. It regulates international trade, protects domestic industries, and prevents illegal imports. The levy and collection of this tax in India are governed by the Customs Act, 1962, and administered by the Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance. This article explores the structure, applicability, types, and implications of this tax in India.
Understanding Custom Duty:
Custom duty, also known as import duty, is an indirect tax imposed by the government on goods imported into India from foreign countries. It is levied at the customs border and payable by the importer, serving objectives such as revenue generation, trade regulation, and protection of domestic industries.
Types of Custom Duty:
- Basic Customs Duty (BCD): Levied as a percentage of the assessable value of imported goods.
- Additional Duty (Countervailing Duty – CVD): Imposed to counterbalance domestic excise duty on similar goods.
- Special Additional Duty (SAD): A supplementary duty aimed at protecting domestic industries.
How is Custom Duty Calculated?
The following factors determine custom duty:
- Assessable Value: Transaction value of imported goods + insurance and freight (CIF value)
- Charges: As defined in the Customs Tariff Act, 1975, and applicable trade agreements
- Applicable Taxes and Surcharges: Including BCD, IGST, Social Welfare Surcharge, and other levies
Exemptions & Concessions in Import Duty
The government provides exemptions and concessions under:
- Free Trade Agreements (FTAs): Reduced duty on imports from partner countries (e.g., ASEAN, Japan, South Korea).
- Special Economic Zones (SEZs): Duty-free import of raw materials for export-oriented industries.
- Export Promotion Schemes: Reduced duty for inputs used in manufacturing export goods under schemes like EPCG (Export Promotion Capital Goods).
Compliance & Filing Process
- Import & Export Declaration: Importers/exporters must declare goods using the Bill of Entry (Imports) or Shipping Bill (Exports) on the Indian Customs EDI System (ICES).
- Assessment & Valuation: Custom officers assess the declared value and verify applicable charges, including import taxes.
- Payment: Importers/exporters must pay applicable custom duties before clearing goods through the ICEGATE (Indian Customs Electronic Gateway).
- Clearance & Documentation: After payment, goods undergo customs clearance via a Risk Management System (RMS).
- Post-Clearance Audit: CBIC conducts audits to ensure compliance with trade laws and taxation policies.
Impact of Custom Duty on Businesses and Consumers
- For Businesses: These duties influence pricing, supply chains, and profit margins. Companies must adjust their procurement strategies accordingly.
- For Consumers: Higher duties lead to increased prices for imported products such as electronics, luxury goods, and automobiles.
Recent Developments in Custom Duty (Union Budget 2025-26)
- Duty rationalization for electronics, automobile components, and renewable energy equipment to promote domestic manufacturing.
- Increase in duty on luxury items such as high-end watches, imported furniture, and cosmetics.
- Reduction in duty on inputs for domestic production under the “Make in India” initiative.
Conclusion
Disclaimer: The views expressed here are of the author and do not reflect those of Dhanvantree. Mutual funds are subject to market risks, please read the scheme documents carefully before investing.