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
Many different documents are required for international transportation. The most important documents include the shipper’s export declaration, the bill of lading, the commercial invoice, and the packing list. These documents are used to track the shipment, calculate customs duties, and provide information about the contents of the shipment. A packing list is one of the terms that are used a lot in the business world. Undoubtedly, the correct understanding of these terms can be a good guide for us in commercial affairs. In this article, we are going to talk about an international document called a packing list.
Table of Contents
Types of International Transportation Documents
What is a Packing List?
How to Prepare a Packing List
Tips for Creating an Effective Packing List
Conclusion
Types of International Transportation Documents
In international trade and transportation, there are documents that specify the features and requirements of the cargo. Shipping documents are the most important documents during international sales and purchases and are considered to be the identification documents of the goods. Shipping documents are crucial at the time of a purchase since, after satisfying financial commitments and clearing accounts with the seller or bank, the buyer can only finish customs formalities and complete the goods clearance by providing international shipping paperwork. International shipping documentation and their various types are described in this article. The most common of these documents are:
Bill of Lading
Certificate of Origin
Commercial Invoice
Packing List
It is important to follow the instructions on all international shipping documents carefully. Failure to do so could result in delays, damage to the shipment, or even legal problems.
What is a Packing List?
Packing list is an international critical document in which important export or import information is mentioned. It provides important information about the shipment that can be used for customs clearance and to ensure that the shipment arrives safely. This document should be accurate and complete to avoid any delays or issues in the shipping process. If you are shipping goods, be sure to include a shipping packing list with your shipment. This document can save you time and money by ensuring that your shipment arrives safely and intact. This list typically includes the following information:
Shipper and consignee information
Details about the contents of the shipment
Packaging and labeling information
Weight and dimensions of the shipment
Shipping and handling instructions
In general, this document can be utilized in at least three situations:
It is required by officials and evaluators when inspecting the contents of boxes or cartons.
It is used by storekeepers to issue invoices and check the quality and quantity of products imported to customs.
A packing list is also used as a supporting document if there is a disagreement between the carrier and the exporter over the cargo’s measurement and weight.
How to Prepare a Packing List
As mentioned, packing lists are an essential part of the transportation process, whether you’re shipping goods domestically or internationally. A packing list is a document that itemizes all of the products being shipped in a single transaction. It is used by the carrier to verify that the products being shipped match the description on the this list. This document can be created manually or with the help of shipping software. When creating a packing list, be sure to include the following information:
A description of the products being shipped
The quantity of each product
The weight of each product
The dimensions of each product
The value of each product
The origin of the shipment
The destination of the shipment
The name and contact information of the shipper
The name and contact information of the consignee
Packing lists can be simple or complex, depending on the nature of the shipment. For example, a shipment of books might only require a description of the goods and the quantity. However, a shipment of electronic equipment would require a more detailed list that includes the weight, dimensions, and value of each item. Once the packing list is complete, it should be attached to the outside of the shipment so that the carrier can easily verify the contents. In some cases, this list may also be used as the commercial invoice.
Tips for Creating an Effective Packing List
When it comes to packing for a freight shipment, there are a few things to keep in mind in order to make sure everything arrives safely and on time. This document is important as it will be used by the freight company to determine what items are being shipped, as well as how they should be packed. Here are a few tips for creating an effective packing list document:
Include all items that are being shipped: This seems like an obvious one, but it is important to make sure that all items that are being shipped are included on the packing list. This includes any items that are being packed in boxes, as well as any loose items.
Clearly label all items: All items should be clearly labeled with your name, address, and contact information. This will help the freight company to identify the items and get them to their destination safely.
Use proper packaging: It is important to use proper packaging when shipping items via freight. This includes using boxes that are the proper size and strength for the items being shipped. Additionally, items should be properly cushioned and secured so that they do not shift during transit.
Include a packing slip: A packing slip should be included with your list. This document should include your name, address, and contact information as well as a list of all items being shipped.
Use a reputable freight company: This is perhaps the most important tip of all. Be sure to use a reputable freight company that has a good reputation for shipping items safely and on time.
By following these tips, you can be sure that your packing list document will be effective and that your items will arrive safely at their destination.
Conclusion
Preparing a packing list can greatly reduce your financial cost and time. By preparing this list, there is no need to fully inspect your goods when entering different countries. A full inspection usually involves costs that are the responsibility of the sender. By making a packing list, you can avoid such problems.
You’ve heard people talk about how to do the sexy part of exporting—the research, the schmoozing, the travel and all the marketing and sales stuff that people think about when they think about the glamour of international trade.
But what I want to talk about is the not-so-sexy part of exporting: the basic export documents required for international shipping. It’s the stuff you need to do—and do correctly—to successfully deliver goods and make money. I’d argue that this not-so-sexy part of exporting is more important than the sexier side but maybe that’s just because it’s what I’ve been focusing on for more than 5 years.
With that in mind, here are 11 standard shipping documents for export that you need to understand in order to be successful.
Proforma Invoice
Commercial Invoice
Packing List
Certificates of Origin
Certificate of Free Sale
Shipper’s Letter of Instruction
Inland Bill of Lading
Ocean Bill of Lading
Air Waybill
Dangerous Goods Forms
Bank Draft
Learn more about the dozens of exporting forms you may need to complete in order to ship your goods. Download The Beginner’s Guide To Export Forms.
1.Proforma Invoice
In a typical export exchange, everything starts when you receive an inquiry about one or more of your products. That inquiry may include a request for a quotation.
If the inquiry came from a domestic prospect, you probably have a standard quotation form to use. However, in an international transaction, your quote would be provided as a proforma invoice. That’s because your international prospect may need a proforma invoice to arrange for financing, to open a letter of credit, to apply for the proper import licenses and more.
A proforma invoice looks a lot like a commercial invoice, and if you complete it correctly, they will be very similar indeed. A proforma invoice specifies the following:
The buyer and seller in the transaction.
A detailed description of the goods.
The Harmonized System classification of those goods.
The price.
The payment term of the sale, which would typically be expressed as one of the 11 current Incoterms.
The delivery details, including how and where the goods will be delivered and how much that will cost.
The currency used in the quote, whether it’s U.S. dollars or some other currency.
Be sure to date your proforma invoice and include an expiration date. There can be a lot of volatility in the export process, so minimize your risk by setting a specific time frame for your quote.
2. Commercial Invoice
Once you’ve sent a proforma invoice to your international prospect and received their order, you need to prepare your goods for shipping, including the paperwork that must accompany the goods. Of those documents, the commercial invoice is one of the most important.
The commercial invoice includes most of the details of the entire export transaction, from start to finish.
I often get questions from people who look at this sample commercial invoice and wonder why it looks so different from the invoices their company uses for domestic orders. Keep in mind that the invoices you create from your company’s accounting or ERP system are accounting invoices used to get paid, not export invoices.
The commercial invoice may look similar to the proforma invoice you initially sent your customer to serve as a quote, although it should include additional details you didn’t know before. For example, once you have the commercial invoice, you probably have an order number, purchase order number or some other customer reference number; you may also have additional banking and payment information.
Make sure to include any relevant marine insurance information and any other details that will ensure prompt delivery of the goods and full payment from your customer.
3. Packing List
An export packing list may be more detailed than a packing list or packing slip you provide for your domestic shipments. It may be used in the following ways:
Your freight forwarder may use the information on the packing list to create the bills of lading for the shipment.
A bank may require that a detailed packing list be included in the set of documents you present to get paid under a letter of credit.
Customs officials in the U.S. and the destination country may use the packing list to identify the location of certain packed items they want to examine. It’s much better that they know which box to open or pallet to unwrap rather than needing to search the entire shipment.
The packing list identifies items in the shipment and includes the net and gross weight and dimensions of the packages in both U.S. imperial and metric measurements. It identifies any markings that appear on the packages, and any special instructions for ensuring safe delivery of the goods to their final destination.
If cargo is lost or damaged, a packing list is required to file an insurance claim, and it is also used if there is a disagreement between the carrier and the exporter regarding the weight or measurement of the cargo.
4. Certificates of Origin
Some countries require a certificate of origin to identify in what country the goods originated. These certificates of origin usually need to be signed by some semi-official organization, like a chamber of commerce or a country’s consulate office. A certificate of origin may be required even if you’ve included the country of origin information on your commercial invoice.
Usually a chamber of commerce will charge you a fee to stamp and sign your certificate or require you to be a member of the chamber. You’ll need to deliver a completed form to the chamber office where they will stamp and sign it for you.
More and more companies are foregoing the time-consuming process of relying on expensive courier services or taking the time to hand-deliver a certificate of origin to a chamber of commerce for certification and are relying on electronic certificates of origin (eCO) for their shipments. An eCO is often quicker to turn around, allows you the option of delivering the certificate electronically to the importer, and can be registered with the International Chamber of Commerce to provide added credibility.
Country-Specific Certificates
In addition to the generic certificate of origin form, there are also country-specific certificates of origin. The United States currently has signed 14 free trade agreements with 20 different countries in which U.S. goods are eligible for reduced or zero duty rates when imported into those countries. Some free trade agreements, including the United States-Central America-Dominican Republic Free Trade Agreement (CAFTA-DR), cover multiple countries, including the U.S. In our article When to Use a Certificate of Origin Form for Your Exports, you’ll find links to country-specific certificates.
On July 1, 2020, the United States-Mexico-Canada Agreement (USMCA) replaced the NAFTA agreement between the three countries. You’ll find the differences between the two free trade agreements in the article NAFTA vs. USMCA: The North American Free Trade Agreement and the U.S.-Mexico-Canada Agreement.
5. Certificate of Free Sale
Sometimes called a “Certificate for Export” or “Certificate to Foreign Governments,” a Certificate of Free Sale is evidence that goods—such as food items, cosmetics, biologics or medical devices—are legally sold or distributed in the open market, freely without restriction, and approved by the regulatory authorities in the country of origin (the United States).
A Certificate of Free Sale is used when you are registering a new product in a country. You’re essentially informing the customs authority in that country, “This is a new thing I’m going to start importing, and here are my support documents that confirm this product(s) is legal to sell in the country of manufacture.”
If your international customer requests a Certificate of Free Sale, you can easily apply for a certificate online (there’s no cost or obligation for registering).
6. Shipper’s Letter of Instruction
One of the most important people you will work with in the export process is your freight forwarder, who usually arranges the transport of your goods with a carrier and helps ensure you’ve taken care of all the details.
Depending on your agreed-upon terms of sale—remember, that’s typically the Incoterm you choose—either you hire a freight forwarder to work for you, the exporter, or, in the case of a routed export transaction, the buyer hires a freight forwarder.
Regardless of who hired the forwarder, it’s important you provide a Shipper’s Letter of Instruction (SLI) with all the information needed to successfully move your goods. (Here are several good reasons why a letter of instruction is necessary.)
I often describe the SLI as a cover memo for your other export paperwork. Depending on whether or not the forwarder works for you, the SLI may include a limited Power of Attorney, providing authority to act on your behalf for this shipment. Learn more about how to fill out an SLI here.
AES Concerns
Depending on who hired the forwarder, the SLI may also grant the forwarder permission to file the export information electronically through the Automated Export System (AES). Most exports valued at more than $2,500 per item must be submitted to customs via AES, which makes filing through AES an important consideration for many exporters.
If the freight forwarder is hired by the buyer, then the forwarder typically does the AES filing. Even if you, as the seller, hire the forwarder, you may pay the forwarder to do the AES filing on your behalf.
In either case, even if you aren’t doing the AES filing yourself, you are legally required to provide certain data elements to the forwarder for filing purposes; this is usually done via SLI. As an aside, I strongly believe that you, as the exporter, should almost always be the party that does the AES filing—even in a routed export transaction where the buyer picks a forwarder.
It’s simple to file the documents needed for shipping through AES, and doing it yourself gives you more control over the process. More and more of our clients are assuming that responsibility for every export shipment for just that reason—get a step-by-step guide to filing here.
However, I understand that many companies do rely on a freight forwarder for their AES filings, so an accurately completed SLI is very important.
7. Inland Bill of Lading
An inland bill of lading is often the first transportation document required for international shipping created for your export. It can be prepared by the inland carrier or you can create it yourself. It’s a contract of carriage between the exporter and the shipper of the goods that states where the goods are going; it also serves as your receipt that the goods have been picked up.
In an international shipment, the inland bill of lading is not typically consigned to the buyer. Instead, it is consigned to the carrier moving the goods internationally or, if not directly to the carrier, to a forwarder, warehouse or some other third party who will consign your goods to the carrier when ready.
8. Ocean Bill of Lading
If your goods are shipping by ocean vessel, you’ll need an ocean bill of lading. An ocean bill of lading can serve as both a contract of carriage and a document of title for the cargo. There are two types:
Straight Bill of Lading
A straight bill of lading is consigned to a specific consignee and is not negotiable. The consignee takes possession of the goods by presenting a signed, original bill of lading to the carrier.
Negotiable Bill of Lading
A negotiable bill of lading is consigned “to order” or “to order of shipper” and is signed by the shipper and sent to a bank in the buyer’s country. The bank holds onto the original bill of lading until the requirements of a documentary collection or a letter of credit have been satisfied.
9. Air Waybill
Goods shipped on a plane require an air waybill. It is a contract of carriage between the shipper and the carrier that is distributed by the International Air Transport Association (IATA). Unlike an ocean bill of lading, an air waybill cannot be negotiable.
The purpose of an air waybill differs from the purpose of a bill of lading:
An air waybill is a receipt of goods; the carrier or agent sends it in order to show the place of delivery.
A bill of lading is a document of title to goods. It is a receipt by the shipping company with an agreement to deliver the goods at the destination only to the party the bill of lading is consigned to.
10. Dangerous Goods Forms
If your products are considered dangerous goods by either the International Air Transport Association (IATA) or the International Maritime Organization (IMO), you need to include the appropriate dangerous goods form with your shipment. Shipping dangerous goods or hazardous materials can be tricky. Before you do it, the appropriate people at your company need to be trained to properly package, label and document these shipments.
The IATA form—the Shipper’s Declaration for Dangerous Goods—is required for air shipments. There is a different version of the form for ocean shipments. Again, these forms need to be completed by someone who has been trained to handle dangerous goods shipping.
11. Bank Draft
A bank draft is an important part of the international sales process for transferring control of the exported goods from the seller in exchange for funds from the buyer. It is often called a documentary collection, because the seller attaches various documents to a bank draft and a cover letter.
Usually the seller’s bank will send the bank draft and related documents via the freight forwarder to the buyer’s bank or a bank with which it has a relationship in the buyer’s country. When the buyer authorizes payment for the goods, the buyer’s bank releases the documents to the buyer and transfers the funds to the seller’s bank.
The bank draft may or may not include a transmittal letter, which includes details of the bank draft transaction, including the types of additional documents that are included and payment instructions.
Import Export Code (IEC) is an unique identification number assigned to importers and exporters in India. It is mandatory to maintain IEC registration with the Central Board of Excise and Customs (CBEC) in order to trade in goods and services between India and other countries.
To update your IEC registration, follow these steps:
Login to the official website.
Click on ‘Registrations’ tab.
Select ‘Import/Export’ from the main menu and then click on ‘Registration Details’ from the sub-menu.
On the ‘Registration Details’ page, under ‘Import Export Code (IEC)’, you will find the ‘Update IEC Registration Form’ link. Click on this link to open the form.
Complete all fields on the form and click on the ‘Submit’ button to submit it.
Your IEC registration will be updated automatically after submitting the form.
Why Do I Need to Update My Import Export Code (IEC) Registration in India?
Import Export Code (IEC) is a unique code assigned to a company which allows the Customs authorities of different countries to track the imports and exports of that company. The code is mandatory for all companies who engage in international trade, whether for goods or services. In order to keep your IEC registration current, it is important to file an annual update application with the Indian Customs. Failure to do so could lead to penalties and delays in customs clearance.
The benefits of keeping your IEC registration current include:
Reduced time spent on customs documentation
Improved accuracy of customs declarations
Increased safety when engaging in international trade
Fill Out Your New Information
By updating your IEC registration, you will help ensure that your business is compliant with current regulations and meet the expectations of customers and partners.
To update your IEC registration, you will need to submit the following information:
Your company name
Your company address
Your company phone number
Your company email address
Your company website URL (if applicable)
The type of business you are in (import/export)
What to Do if I Have an Expired IEC Registration Certificate
If you have an expired IEC registration certificate, there are a few things you can do to update your registration. You can either visit an IEC authorized agent or mail in the renewal application.
If you visit an IEC authorized agent, they will be able to update your registration for you. You will need to bring your expired certificate and the renewal application.
If you mail in the renewal application, you will need to include your expired certificate and the renewal application form. You will also need to provide your full name, date of birth, business name, address, and telephone number.
Where Can I Find More Information on Import Export Code (IEC) Registrations?
Import Export Code (IEC) registrations are a necessary part of doing business in India. There are a few resources available to help you with your IEC registration. The official website of the Department of Industrial Policy and Promotion offers a step-by-step guide for registering your IEC. Additionally, the website has a searchable database of registered IECs.
If you need more help than the online resources can offer, you can contact the Indian Chamber of Commerce and Industry. They can provide guidance on how to register your IEC and provide other support services to its members.
How Many IEC Codes Are Allowed in India?
In India, there are a maximum of 10 IEC codes that can be registered with the Export Promotion Council of India. These codes represent specific types of exports that India is interested in promoting. To register an IEC code: https://www.dgft.gov.in/CP/ you must first contact the Export Promotion Council of India and submit a registration application. After your code has been registered, you can use it to apply for export promotion programs and support from the Indian government.
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