Custom duty is the additional tax imposed on goods when they are shipped across an international customs border. [1] In India, the customs duties are regulated by the Customs Act and the Customs Tariff Act 1975. The main aim behind the customs duty is to protect each country’s economy, jobs, and environment by regulating the movement of goods to and from the country. [2]
Every good has a pre-determined rate fixed. But do you know why imported goods have different customs dutieseven if they are similar? Because duty rates are dependent on multiple factors such as where these goods are made, where the goods were purchased, and from what materials they are made. Read on to find out more!
Types of Custom Duties on Imported Goods
The following types of duties are imposed on imported goods.
Basic Custom Duty
Basic custom duty payment are levied in accordance with Section 14 of the Customs Act 1962. This is the standard duty charged on most imported goods. It usually ranges between 5% and 40% of the goods’ value.
Countervailing Duty
It is also referred to as an anti-subsidy duty. This duty is imposed to protect the domestic industries from the subsidies provided by foreign governments on exported goods. This is primarily done to ensure the foreign government does not take an unfair advantage of any Indian industry.
Anti-Dumping Duty
This duty is generally imposed on foreign goods that are imported into India at prices lower than their normal value (often below the cost of production or market value in the exporter’s country).
Additional Customs Duty or Special CVD
This duty is levied on imported goods to counterbalance the excise duty that is levied on similar domestic goods. Its main purpose is to ensure a fair tax regime. It helps prevent imported products from getting a tax advantage over locally manufactured items.
Protective Duty
Protective duties are levied to shield domestic industries from unfair competition from imported goods.
Factors Affecting Import Duties And Taxes
Several factors contribute to the imposition of custom duty payment on imported goods.
Classification
Goods are classified according to the Harmonised System Code. It is important to note that sometimes similar products have different HS codes, and therefore different rates of duties are also imposed on them. For example, even though smartphones and tablets are similar products, their HS codes and duty rates are entirely different.
Material composition
You will be surprised to know that even material composition plays an important role in determining custom duty payment on imported goods. For example, if an imported product is constructed from stainless steel, it will have much lower custom duty as compared to a product made from titanium or aluminium.
End Use
There are times when even the end use of a product determines custom duty payment of imported goods. Confused? Let’s understand with an example.
Suppose a machine imported from the U.S. is supposed to be utilised in a factory. Now, this machine will have a lower rate of duty than a machine imported for personal use.
Country Of Origin
Next up on the list is a well-known factor. India has different customs agreements with different countries. Naturally, the various trade agreements will also result in different custom duty payment rates.
Specific Tariff Line
Sometimes, a few products have specific tariff lines that influence custom duties imposed on imported products, too.
Duty Exemption Schemes
Custom duty exemptions are also provided to certain imported goods in India under the customs law. These exemptions are mainly provided to boost domestic industries and make the inputs cheaper. Another motive is public welfare. Sometimes, exemptions are also provided to encourage international cooperation and research.
- Critical goods: Critical goods like life-saving drugs are exempted.
- Temporary Imports: Goods are imported for a temporary purpose, too. Even items imported by charitable organisations are also exempt from custom duty payment.
Final Thoughts
Various factors, from classification to material composition, origin of country, etc, play a crucial role in determining customs duty on imported goods. The Indian Government is continuously taking steps to ease custom duty payment structure and reduce the number of taxes paid on imported goods. Simultaneously, the government is making efforts to reduce tariffs on imported goods too. Moreover, with advancements in digital systems, making custom duty payment online has become quicker and more convenient. Thus, understanding these duties helps you avoid surprises and make more informed decisions. So the next time you’re importing something, remember it is not just what you import, but where, why, and how that impacts the duties!