Import duty, also known as customs duty, refers to a tax levied by the Indian government on goods brought into the country from abroad. Its primary purpose is to regulate imports, protect domestic industries, and generate revenue for the government.

Every product imported into India is classified under a specific Harmonised System Nomenclature (HSN) and is assigned an HSN code based on its description, components, and use. This code determines the applicable import duty rate. Additionally, the final duty payable may also depend on the country of origin, applicable trade agreements, and the current government’s policies. These factors have been explained separately in further sections.

When goods are imported into India, they are subject to multiple customs-related charges rather than a single tax. These charges are governed by the Customs Act, 1962 and the Customs Tariff Act, 1975. They are levied to regulate imports, protect domestic industries, and ensure tax parity between imported and locally manufactured goods.

Understanding the different types of customs charges in India is essential for accurately estimating import costs and avoiding compliance issues.

Basic Customs Duty (BCD)

The Basic Customs Duty (BCD) is the primary duty imposed on imported goods. It is calculated on the assessable value of the goods, which typically includes the product value, freight, and insurance. BCD rates vary depending on the product’s Harmonised System of Nomenclature (HSN) code and may be charged as a percentage of the product value (ad valorem) or as a fixed amount per unit. Furthermore, the rate structure varies across product categories, with certain goods subject to higher duties

Integrated Goods and Services Tax (IGST)

In addition to BCD, Integrated Goods and Services Tax (IGST) is levied on all imports. IGST is charged at the same rate as the GST on similar goods within India. This ensures tax neutrality between domestic and imported products. Depending on the product, the IGST rate can be 0%, 5%, 12%, 18%, or 28%.

For businesses registered under GST, the IGST paid on imports can generally be claimed as input tax credit. This helps them reduce the overall tax burden and improve cash flow management.

Social Welfare Surcharge

The Social Welfare Surcharge (SWS) is applied to support government welfare initiatives and is typically calculated at 10% of the Basic Customs Duty payable. While it may appear modest, the surcharge increases the overall duty liability and must be factored into landed cost calculations.

Trade Remedial Duties

Certain imports may also attract trade remedial duties, such as Anti-Dumping Duty (ADD) or Countervailing Duty (CVD). ADD is imposed when imported goods are sold in India below their normal prices, thus harming domestic manufacturers. The ADD rate depends on the product, exporter, and the origin country, and is determined after an official investigation.

CVD, on the other hand, offsets subsidies provided by foreign governments to exporters. The purpose of this tax is to eliminate an unfair advantage. CVD rates also depend on the product, exporter, and the original country, and are determined following an official investigation.

Safeguard Duty

In situations where a sudden surge in imports threatens domestic industries, the government may impose a safeguard duty as a temporary protective measure. The government decides the rate and duration of this tax.

Compensation Cess

The compensation cess is levied on the import of specified luxury items and ‘sin’ goods. The examples include tobacco, alcohol, and high-end motor vehicles, among others. The rate is product-specific and can significantly increase the total import costs for those products.

Customs Handling Fee

Customs handling fees are charged by customs authorities to cover administrative and processing expenses incurred during customs clearance. While certain services may be charged on an ad-valorem basis, standard customs clearance procedures typically involve fixed fees or charges that depend on the type of document being filed.

Customs DutySeveral importers often get confused between customs duty and excise duty. Although the two terms seem similar, they represent different types of taxes levied under different circumstances. Let’s learn about the customs and excise duties, and their differences, to better understand these taxes.

What is Customs Duty?

We’ve already discussed customs duty earlier in this blog. Also known as the import duty, it is a tax levied on goods and/or services imported into a country from international sources. Every country has certain customs duty rules aimed at regulating international trade, protecting domestic industries, and generating government revenue.

Beyond trade regulation, customs duties also play an important role in funding public projects and essential services that support a country’s overall development.

What is Excise Duty?

Excise duty is a tax levied on the manufacture, sale, or consumption of certain goods and services within a country. Although it ultimately affects end consumers through higher product prices, the responsibility to pay excise duty lies with manufacturers or service providers.

Products such as alcohol, fuel, tobacco, wine, and gambling-related services commonly attract excise duty. The revenue collected from this tax is used by the government to finance public services and development projects. Excise duty rules and rates vary from country to country and depend on local regulations and policy objectives.

With the introduction of GST, most excise duties have been subsumed into the GST framework. However, customs duty continues to exist independently. When goods are imported, basic customs duty and other import-related charges apply, followed by Integrated GST (IGST), which replaces earlier excise and VAT components for imports.

Difference Between Customs Duty and Excise Duty

The table below depicts the differences between customs duty and excise duty based on various aspects:

Landed cost refers to the total cost of a product once it has arrived at the importer’s doorstep. It includes not only the original product price but also freight charges, insurance, customs duties, taxes, port handling charges, and inland transportation.

Many businesses make the mistake of evaluating import decisions based solely on supplier prices. However, a product that appears inexpensive at the sourcing stage can become costly once all landed cost components are added. Accurate landed cost calculation is essential for pricing decisions, profitability analysis, and inventory planning.

Because landed cost involves multiple variables, businesses can rely on a landed cost calculator to estimate expenses before placing import orders. This simple tool helps simulate different scenarios and enables better decision-making.

Calculating import duty in India involves multiple steps. It requires a clear understanding of customs valuation rules, correct product classification, and the sequence in which different duties and taxes are applied. Errors at any stage can result in underpayment, penalties, or delays during customs clearance.

Step 1 - Determine the CIF value

The first step in calculating import duty is to determine the CIF (Cost, Insurance, and Freight) value of the imported goods. Customs duty is generally levied on this assessable value.

Step 2 - Identify the correct HSN code

The next step involves identifying the correct HSN code for the imported product. Each HSN code corresponds to specific duty rates and regulatory conditions. Incorrect classification may result in either excess duty payment or under-declaration.

Step 3 - Calculate duties in the specific sequence

Once the product is correctly valued and classified, calculate duties in the required sequence. First, apply the Basic Customs Duty to the CIF value. Then, calculate the Social Welfare Surcharge based on a specific percentage of the Basic Customs Duty. Thereafter, calculate the IGST on the cumulative value, which includes CIF, BCD, and SWS. Certain goods may also attract additional levies such as compensation cess or safeguard duty.

Step 4 - Use an import duty calculator for accuracy and efficiency

An import duty calculator India can be a perfect tool to evaluate the applicable customs duty accurately and efficiently. These online calculators allow you to determine import costs by factoring in CIF value, duty rates, and applicable surcharges.

All goods imported into India must go through a customs clearance process, which involves multiple steps as mentioned below:

Step 1 - Calling of Vessels

The procedure begins with the arrival and calling of vessels at the designated customs port. Whether goods arrive by sea or air, the responsibility for reporting the vessel’s arrival lies with the shipping line or airline. Importers are not required to participate at this stage.

Step 2 - Filing of IGM

After the vessel arrives, the person in charge must file an Import General Manifest (IGM). It includes comprehensive details of all goods carried by the vessel and serves as the primary document for customs to track inbound consignments.

Step 3 - Custody of Custodian

After receiving the goods and the IGM, the cargo will remain under the custody of an appointed custodian. He/she can be a person appointed by the Principal Commissioner of Customs.

Step 4 - Filing Bill of Entry

The importer must then file a Bill of Entry electronically. This bill declares the value of the imported goods, classification, and applicable duties through a self-assessment process.

Step 5 - Delivery of goods

Finally, the importer can take delivery of the goods or file an ex-bond Bill of Entry if the cargo is stored in a bonded warehouse.

ICEGATE stands for Indian Customs Electronic Gateway. Established in 2017, it is the national portal that facilitates the electronic filing of customs documents. It acts as an interface between importers, customs brokers, shipping lines, banks, and customs authorities. Through ICEGATE, importers can file Bills of Entry, track clearance status, make electronic payments, and receive acknowledgements.

Understanding import duty, landed cost, and the customs clearance process in India is essential for businesses involved in global trade. Accurate duty calculation, compliance with customs regulations, and timely clearance not only prevent delays and penalties but also protect overall profitability.

However, financial planning does not end at customs. Safeguarding goods in transit is equally critical. Opting for reliable marine insurance or comprehensive marine and cargo insurance helps protect shipments against transit risks, damages, or losses.

TATA AIG offers marine insurance online as a part of the broader commercial insurance segment. Businesses of all types and sizes can avail of this protection to safeguard themselves against cargo loss and/or damage.