Customs Duty

Definition

Customs duty is an indirect tax levied by the central government of India on goods imported into or exported from the country, under the Customs Act, 1962, administered by the Central Board of Indirect Taxes and Customs (CBIC). For most imported goods, the customs duty structure comprises multiple components: Basic Customs Duty (BCD) at rates specified in the Customs Tariff Act, 1975 (First Schedule); Social Welfare Surcharge (SWS) at 10% of BCD; Integrated GST (IGST) at applicable GST rates; GST Compensation Cess for specified goods; and Anti-Dumping Duty (ADD) or Countervailing Duty (CVD) where applicable. The effective total duty on imports can range from 5% to over 100% depending on the product category and applicable rates.

Goods are classified for customs purposes using the Harmonized System (HS) of Nomenclature, maintained by the World Customs Organization (WCO). India uses an 8-digit ITC HS Code (Indian Trade Classification based on Harmonized System) for import-export classification. Importers must file a Bill of Entry electronically through the ICEGATE portal, declaring the imported goods, their value (based on CIF. Cost, Insurance, Freight), quantity, ITC HS code, and applicable exemption notifications. The customs officer assesses the duty and may conduct examination of goods if required. IGST paid on imports is available as Input Tax Credit to the importer (if GST-registered and using goods for taxable supplies), making imports effectively tax-neutral for credit-eligible businesses.

India's customs duty structure is an important tool of industrial policy. Higher BCD rates on finished goods compared to their inputs (tariff escalation) protect domestic manufacturing by making domestic production more competitive. Export duties are levied on a limited range of goods (such as iron ore fines, certain agricultural commodities) to conserve domestic resources or control inflation. India has signed several Free Trade Agreements (FTAs) (with ASEAN, South Korea, Japan, UAE, and Australia, among others) that provide preferential duty rates for goods originating from FTA partner countries, subject to Rules of Origin compliance. The upcoming India-EU FTA and the India-UK FTA are expected to significantly expand preferential duty access. Businesses engaged in international trade must maintain meticulous customs compliance records as the CBIC conducts post-clearance audits.

Key Points

• India's import duty structure includes Basic Customs Duty, Social Welfare Surcharge, IGST, and where applicable, Anti-Dumping Duty and GST Compensation Cess.
• Goods are classified using 8-digit ITC HS Codes; the correct classification is critical as it determines the applicable duty rate and eligibility for exemption notifications.
• IGST paid on imports is eligible as Input Tax Credit for GST-registered importers using goods for taxable business purposes, neutralizing the GST component of import cost.
• India's FTAs with ASEAN, UAE, Australia, South Korea, Japan, and others provide preferential duty rates for qualifying goods, subject to Rules of Origin compliance.
• Importers must file a Bill of Entry through ICEGATE, declaring goods on CIF value basis; post-clearance audits by CBIC verify the accuracy of these declarations.
• Export duties are applied selectively to conserve domestic resources, control inflation, or prevent dumping of raw materials at the expense of domestic value addition.