- Customs Duty Calculation on Imports is based on the Harmonised System of Nomenclature (HSN).
- Customs Duty on Imports includes: Basic Duty + Other Duties + IGST + Compensation Cess.
- Customs Duty on Imports of Passenger Baggage exempts IGST as well as compensation cess.
Customs Duty Calculation on Imports: STEP BY STEP GUIDE
Step-1 is knowing the correct ITC HS CODE.
Step-2 is knowing the Import Duty Structure.
Customs Duty Calculation on Imports: DUTY-Components
Duty-Components looks like the following:
Customs Duty
Basic Customs Duty(BCD)
Customs AIDC
Custom Health CESS (CHCESS)
Other Duties
Excise AIDC(EAIDC)
Social Welfare Surcharge(SWC)
GST Duty
IGST Levy
Compensation Cess(CC)
Many a times when you visit a local shop, particularly an electronic shop, you are told that the cost is high because of customs duty. For example, LG 139 cm (55 inches) 4K Ultra HD Smart OLED TV
Now you know what is customs duty and what does it look like.
CUSTOMS DUTY CALCULATION ON IMPORTS: Example-1
The input tax credit
Credit of Integrated Goods and Services Tax (IGST) [also known as Integrated Tax] on import of goods is deemed as inter-State supplies and accordingly Integrated tax is levied in addition to the applicable Custom duties.
The protocol to avail and utilise the credit of these taxes is as follows:
As an importer registered with GST Department, Integrated tax (IGST) and compensation cess charged on import of goods “input tax”, paid at the time of import, is available for utilisation as Input Tax credit for payment of taxes on outward supplies.
The input tax credit of compensation cess, however, can only be used for payment of compensation cess. Furthermore, the Basic Customs Duty (BCD) and education cess, shall, not be available as input tax credit.
Check List for Imports
Are you planning to import something? If yes, you need to obtain Importer Exporter Code (IEC).
If you don't know how, then please refer essential requirements.
As per DGFT’s Trade Notice No. 09 dated 12.06.2017, the PAN of an entity would be used as the Import Export code (IEC).
Wherever an applicant applies for IEC, the PAN of the applicant will be authorized as an IEC. The importer would only be required to declare GSTIN (where registered under GST).
CUSTOMS DUTY CALCULATION ON IMPORTS: EXAMPLE-2
Suppose the assessable value of an article imported into India is Rs. 100/-. Basic Customs Duty is 10% ad-valorem. Education Cess is 3%; Integrated tax rate is 18% and Compensation Cess is 15%.
The taxes will be calculated as under:
Wherever the goods are also leviable to cess under the Goods and Services Tax (Compensation to States) Cess Act, 2017, the same will be collected on the value taken for levying integrated tax.
Thus, in the above example, in case, cess is leviable, the same would be levied on Rs. 110.30/-.
CUSTOMS DUTY CALCULATION ON IMPORTS: Anti-Dumping Duty
In cases where imported goods are liable to Anti-Dumping Duty or Safeguard Duty, value for calculation of IGST as well as Compensation Cess shall also include Anti-Dumping Duty amount and Safeguard duty amount.
CUSTOMS DUTY CALCULATION ON IMPORTS: Baggage Import
Passenger Baggage are exempted from IGST as well as compensation cess. The basic customs duty at the rate of 35% and the applicable education cess shall be leviable on the value which is in excess of the duty free allowances provided under the Baggage Rules, 2016
CUSTOMS DUTY ON IMPORTS: CENTRAL TAX OR STATE TAX
As we know, there are two types of Taxes in India: Central Taxes and State Taxes. Customs Duty is part of Central Taxes. As stated above, IGST is also part of Customs Duty which can be considered as Input Tax.
CENTRAL TAXES
References:
Duty-Components
- Basic Customs Duty (BCD): BCD is calculated on the Assessment Value of the goods, i.e., the landed cost (CIF Value). BCD varies between 0% to 100%. BCD depends upon the HSN code of the product and the Country of Import.
BCD for HSN codes is revised from time-to-time and revised duties are published as Notifications on the website of Central Board of Indirect Taxes and Customs (CBIC — www.cbic.gov.in/Customs-Notifications).
- Social Welfare Surcharge (SWS): SWS is imposed on the value of goods including the BCD value. It is generally 10% unless the good is exempted from this tax.
- Integrated Goods & Services Tax (IGST): IGST is imposed on the imported goods to provide a level playing field for domestic manufacturers, who also pay an equivalent tax (Central GST + State GST or IGST) on sale of goods. IGST on imported goods can be set-off against any other GST liability in India. There are five slabs of IGST 0%, 5%, 12%, 18%, 28%.
- Compensation Cess: This is an additional tax that is imposed along with GST on both imported items as well as domestically manufactured items on products that are classified as notified E.g. Special Utility Vehicles, Cigarettes, Tobacco, Aerated Water, etc.
How to reduce Basic Customs Duty (BCD)
- Special Economic Zone: Units operating in SEZ are exempted from BCD and IGST on Capital Goods, Raw Material and other Fixtures. If these units, do any sales in the domestic market of India then they pay applicable BCD + IGST on the product or service.
- Bonded Warehouses: Bonded Warehouse can be used for storage of goods as well as for manufacturing as elucidated in Circular 38/2018 dated 18 October 2018. Unit holders can defer BCD on imported Capital Goods, Raw Material and other Fixtures. This duty can be deferred until clearance in the domestic tariff area and can be exempted if the products are exported/re-exported. There is no time limit for duty deferment.
- Free Trade Warehousing Zone: As per SEZ Act 2005 and SEZ Rules applicable predominately for EXIM trade & storage. Duty deferment permitted on imported goods and also permits trade transactions in foreign currency.
- Foreign Trade Policy 2015-20: Import policy is published by Directorate General of Foreign Trade (DGFT), Ministry of Commerce & Industry. Foreign Trade Policy schemes that can help reduce BCD liability are:
- Project Import Scheme: Relaxes duties for import of specific capital goods
- Advanced Authorization Scheme: Exempts duties for import of inputs for export consignments
- Export Promotion Capital Goods (EPCG): Allows import of capital goods including spares for pre-production, production and post-production at zero duty subject to an export obligation of 6 times of duty saved, to be fulfilled in 6 years from authorization issue date.
- Sectoral Incentive Schemes: Central Government may announce exemption from BCD for specific types of machinery to encourage manufacturing or modernization in certain sectors. E.g. Government of India reduced BCD on 35 capital goods that are used for manufacturing mobile phone components such as a lithium-ion battery, speaker and receiver of mobile phones, data cables, optical fibre etc.
- Free Trade Agreements & Other Preferential Treaties: Most Favoured Nation (MFN) or arrangements under FTA / PTA can help reduced BCD rates.