Ultimate Guide for Understanding Indian Custom Duties and Taxes

Shipping internationally comes up with many challenges and pre-calculations for successful deliveries but the biggest factors that require proper understanding are custom duties and taxes.

To assist you comprehend shipping duties we have created this ultimate guide to clarify methods, and provide best practices for handling these practice so you can prepare your Business to meet Custom regulations.

What are Custom duties and taxes?

Custom duties and taxes are tariffs imposed on goods imported from other countries into our nation and on goods exported to other countries from India. These tariffs are mainly imposed to control the flow of banned commodities across the international borders. Undoubtedly, It is one of the biggest source of Central Fiscal Revenue and charging taxes legitimately is one of the most important task of Custom authorities.

Why Custom duties matter in International Shipping?

In India Custom duty is well defined under Act of Customs, 1962 and each and every matter related to Custom regulations fall under CBEC (Central board of Exercise and Customs).

Government impose tax on international shipments for the following reasons:

• Restrict the flow of prohibited goods in and out of the country

• Raise revenue through legitimate tariffs

•  Protect the countries jobs, environment, residents and economy, etc.

•           Protect domestic companies and maintain healthy competition across the globe

How to prepare for Custom Duties and Taxes?

The cost of Indian customs tax varies depending on the commodities involved, where they are coming from, and what they are made of.

To calculate customs tax rates, you'll need the HSN code, which is used in the Harmonized Commodity Description and Coding System, an internationally agreed-upon system of identifying product kinds.

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 and Taxes in India

Type	Rate	When Applicable
Basic Customs Duty (BCD)	Decided according to the HSN code of the product and its origin. It can be from 0% to 100%	The actual fee paid will depend on where goods are coming from, what they are, and what they’re made of.
Countervailing Duty (CVD)	0 to 12% depending on product	Countervailing duty is applied on products which received benefits like tax breaks or or subsidies in the country where they were manufactured
Special Additional Duty (SAD)	4% where applied	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.
Safeguard Duty	By Notification	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 that involves selling goods in a foreign market for less than their production cost or market value. This would be extremely damaging to local industry and is therefore countered by Anti-dumping Duties where necessary.
Compensation Cess	Applied according to product type, for things such as cigarettes and pollution-causing products such as coal and automobiles.	Compensation Cess was created to compensate manufacturing heavy states which would lose revenue when the new IGST was brought in nationally in 2017.
Integrated Goods and Services Tax	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.
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 customs tax you must pay may be fixed or based on the value of the specific merchandise. An ad valorem basis calculation is what this is. Ad valorem computations are governed by the rules outlined in Rule 3(i) of the Customs Valuation Rules, 2007. If your individual products are not covered by this regulation, the value is computed according to the hierarchy outlined below.

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 Method	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

Every country has a tax threshold, which is the amount above which a person must start paying taxes on an item. Because customs duty may not apply to every international shipment, it is best to examine the tax thresholds for each country to which you intend to ship.

How the Custom Process works?

The Custom Clearance process starts as soon as your shipment arrives in customs. To better understand how taxes and duties affect the custom clearance process check these:

• The first step starts with proper inspection of the shipment by the custom officer and making sure the shipment has all the mandatory documents attached to it.

• The value and category of your goods on your commercial invoice will be scrutinised by the customs officer. They can also review your website or crowd funding campaign to ensure that the item worth matches what is on the business invoice – so please be truthful with your documents! This will determine whether or not customs and taxes are applicable to your shipment.

• If the package arrives with duties paid, it signifies the sender took care of the payment, allowing the shipment to be freed for distribution. If the shipment comes with unpaid duties, the recipient must handle it. Customs will hold the delivery, and the courier's independent broker will contact the recipient directly for payment.

• The shipment is released and delivered once the custom officer ensures that the tariffs and taxes are paid.

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