If you plan on importing into India, you need to know what customs duty or tariffs you may need to pay. This guide covers all you need – plus some handy insight into how Wise can help, with mid-market rate currency exchange, for a better deal when paying for goods from overseas.
What is a custom duty?
Customs duty tax is an indirect government tax on consumers. Duties are paid by importers and distributors – who then pass the cost on to consumers. You may also see reference to excise duties. These are added to products like alcohol and tobacco, increasing the cost of harmful goods and discouraging public use.
How about customs tariff?
Duties are charged on both local and imported goods. Tariffs, however, are only used for imported and exported goods. Tariffs protect the local economy by making imported goods more expensive compared to domestic production.
Indian customs duties
Customs tariff in India
Indian customs duty costs vary according to the goods involved, where they’re coming from, and what they’re made from.
To work out custom duty rates, you’ll need the HS code, which is known as HSN Code in India, for your products – that’s the code used in the Harmonized Commodity Description and Coding System, a globally agreed method of identifying product types.
Then, find the specific Indian customs taxes involved by reference to the Tariff Schedule or the Indian Customs Tariff as laid out in the Customs Act (1962) and Customs Tariff act (1975).
Types of custom duty in India
| Type of custom duty | Rate | When applicable |
|---|---|---|
| Basic Customs Duty (BCD) | BCD is decided according to the HS code of the product and its origin. It can be from 0% to 100%. | Basic Customs Duty is assessed on all goods imported into India. The actual fee paid will depend on where goods are coming from, what they are, and what they’re made of. Some goods such as life saving medicines may be exempt – and therefore receive a 0% BCD rate. |
| Countervailing Duty (CVD) | 0% to 12% depending on the product | Countervailing duty is applied on products which received benefits like tax breaks or or subsidies in the country where they were manufactured. The aim of this duty is to stop these products having an unfair advantage over locally produced goods. |
| Special Additional Duty (SAD) | 4% where applied | Special Additional Duty of Customs is applied on some imported goods, where the locally produced equivalents would be subject to sales tax. This is to make sure that domestic manufacturing is not at a disadvantage. SAD is calculated on the total of the assessable value of the goods, plus other taxes that must be paid such as BCD and CVD. |
| Social Welfare Surcharge (SWS) | 10% where applied | The Social Welfare Surcharge was introduced in 2018 to support government social welfare projects. This fee replaces the Education Cesses which were previously used. Goods which were previously exempt from Education Cesses are likely to be exempt from SWS, too. |
| Safeguard Duty | By notification | Safeguard Duty can be imposed by the Indian customs authorities if it is needed to protect local industries from an increased volume of imported goods. If imports are damaging local producers, they may become subject to Safeguard Duty. |
| Anti-dumping Duty | By notification | Dumping is an unfair international trade practise which involves selling goods in a foreign market for below production cost, or below their market value. This would severely damage local industry, and is therefore counteracted by Anti-dumping Duties where required. |
| Compensation cess | Applied according to product type, for items such as tobacco products, and pollution causing products like coal and cars. | Compensation Cess was created to compensate manufacturing heavy states which would lose revenue when the new IGST was brought in nationally in 2017. This tax is intended to be used for 5 years to ease the transition into IGST for these states. |
| Integrated Goods & Services Tax (IGST) | 5%, 12%, 18%, 28% | The Integrated Goods & Services Tax (IGST) came into being in 2017. It brought together various other existing taxes under one umbrella. IGST is applied on imported goods under one of 7 different rates, and is used to create a level playing field between imported goods and local goods which are also subject to various taxes. |
| Customs handling fee | 1% | On top of any other taxes payable, there is a 1% customs handling fee to pay. |
How custom duty is calculated in India?
The amount of custom duty you have to pay may be fixed, or calculated according to the value of the specific products. This is known as an ad valorem basis calculation. Rules are set out for ad valorem calculations in Rule 3(i) of the Customs Valuation Rules, 2007. If your specific products aren’t covered under this rule, the value is calculated under the hierarchy laid out below.
If you want to learn how to calculate import duty on the goods or service you import to India, check out our guide on import duty calculation
| Method | When applicable |
|---|---|
| Comparative Value | Value can be decided based on comparison with similar items, under Rule 4 |
| Comparative Value | Value can be decided based on comparison with similar items, under Rule 5 |
| Deductive Value | Rule 7 allows for valuation based on the sale price of the items at their point of origin |
| Comparative Value | Rule 8 decides the value based on the raw material and production costs of the product, as well as expected profit at the point of origin. |
| Fallback Method | Rule 9 allows for a fallback method, based on the above rules but with more flexibility |
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