Custom Duty Calculation: How to Calculate & Its Types

The world economy thrives on imports and exports. When you import goods from outside the country, the government of India levies import or customs duty, a type of indirect tax on those goods. Similarly, when exporting certain goods to other countries, a tax levied is called an export duty. Governed by the Customs customs duties, the Department of Revenue from the Ministry of Finance regulates cross-border flows and collects custom duty.Accurately calculating customs duty is an essential part of trade exchanges for the government and importers. The tax collected serves as a source of revenue for the government. But it also impacts the overall importing cost for domestic traders, ultimately determining their profit margin. As a citizen of India, it is essential to understand the different types of customs charges levied by the government on goods entering the country, the factors that influence this cost and how to calculate it.

The task of levy and collection of customs duty falls under the Customs Act of 1962. The act aims to ensure complete freedom for the Government of India to levy reasonable charges on imports and exports, terminate exchanges, and impose fines when necessary.In India, this task of exchange between nations falls under the purview of the Department of Revenue of the Ministry of Finance. CBEC, or Central Board of Excise and Customs, enforces administrative decisions on behalf of the ministry. From collecting basic customs duty to implementing smuggling prevention guidelines, CBEC works as a force to ensure no illegal goods enter the country. The department is further broken down into smaller divisions, like the Commissioner of Customs, Central Revenues Control Laboratory and Directorates, and more, for seamless imparting of rules and regulations.

All goods imported from other nations to India come under Section 12 of the Customs Act 1962, and importers pay a Basic Customs Duty (BCD). Various factors, such as estimated value, dimension of the product, etc. determine this duty. The charges are titled ‘Specific Duties’ when they fall under the weight or quantity purview, while value-based costs fall under ‘Ad Valorem Duties’. When a combination of multiple factors determines the charge of a good, it is known as ‘Compound Duties’.Almost all imported goods into India carry a customs duty charge, while export duty is more flexible. Some essential imports like food grains, fertilisers, and life-saving drugs are exempt from any charges.

You can pay customs duty online by following the below steps:

• Head over to the ICEGATE e-payment portal
• Enter the site with your login credentials and click on the e-payment option
• You will have access to the unpaid challans under your name
• Select the challan you want to make a payment for
• Opt for a bank payment method and process the amount
• You will then be redirected to the ICEGATE portal once the transaction is complete
• Print to save your copy

The ICEGATE portal has a calculator that you can use to access codes, study trade guides, and make GSTIN ID enquiries. Read more: What is GSTIN? Understanding its Structure, Eligibility, and Benefits

Basic Custom Duty (BCD)

The most common type of customs duty, BCD, is levied on the assessable value of the goods imported. The percentage charged includes the cost of the goods, insurance cost, freight and transportation. BCD brings in revenue for the government and aids domestic industries by increasing the cost of imported goods compared to those locally manufactured.

Additional Custom Duty (ACD)

ACD, also known as Countervailing Duty, is charged on certain imports at a rate equivalent to the excise duty on similar locally produced goods. This duty aims to reduce the undue advantage imported goods have over their local counterparts.

Anti-dumping duty

When origin countries price certain goods lower than their standard value, industries in India see a sharp decline in sales. Anti-Dumping duty on such goods ensures the domestic sector is not subject to unfair competition.

Social welfare surcharge

This tariff was introduced in 2018 to support various social welfare projects initiated by the government. It is charged at 10% of the aggregate of cesses, duties and taxes the government has levied.

Safeguard duty

Safeguard duty is a government-imposed tariff barrier that is levied when there is excess import on certain commodities, which could threaten the domestic market for those products.

IGST

IGST, also known as Integrated Goods and Services Tax, falls under the Customs Act of 1962, read with the Customs Tariff Act of 1975. GST replaced customs duty in 2017 as per Article 269A of the Indian Constitution under the basis that importers of services must pay tax on a reverse charge basis.IGST is calculated based on the HSN code of the goods imported. In a scenario where the goods are liable to Safeguard or Anti-Dumping Duty, the calculation of IGST will include the excess customs charge and compensation cess. Also read: Tax Systems Before GST and After GST?

Using a custom duty calculator is not always straightforward because various factors influence the charges. Here are some factors that affect the calculation

• The value of the goods in question is the most crucial factor affecting customs duty calculation in India. To get the assessable value of the goods, you need to add the cost of the product, along with the insurance and freight charges incurred to transport the goods. Customs duty is usually calculated as a percentage of the assessable amount. The more valuable the goods are, the higher the customs duty payable.
• Another factor that drives customs duty charges up or down is the country of origin. Different nations have special tariffs and trade agreements with India, and when you import from a country holding a Free Trade Agreement, customs duty is low or even waived off. The opposite happens when there is no trade agreement in place.
• Every good imported is classified under the HSN or Harmonized System of Nomenclature. An international classification system gives goods an HSN code based on their characteristics. The HSN code determines whether the goods qualify for additional duties over and above customs charges.
• Other factors like the mode of transportation used, packaging materials, and applicable exemptions also affect the customs duty calculation.

Calculating customs duty is easy when you understand the parameters that define imported goods. Factors like market value, weight, dimensions, etc., determine the percentage the government charges. Calculating is sometimes confusing, so the Government of India has a comprehensive custom duty calculator to do the job.To understand how a custom duty calculator works, let’s see an example:You import a car to India from Japan, with an assessable value of ₹ 10 lakhs.Here's how you calculate customs duty:The HSN code for cars is 8703:

• Basic custom duty : 60% of ₹ 10 lakhs = ₹ 6 lakhs
• Additional customs duty : 20% of (₹ 10 lakhs + ₹ 6 lakhs) = ₹ 3.2 lakhs
• Education cess : 2% of (₹ 6 lakhs + ₹ 3.2 lakhs) = ₹ 18,400

Customs payable= ₹ 6 lakhs + ₹ 3.2 lakhs + ₹ 18,400= ₹ 9,18,400In scenarios where sellers intentionally declare a lower value of the goods to save costs, there is an indirect method used:

• The price of the item is compared with other similar goods in the market.
• Using the original sale price of the item from the exporting country as a guide.
• Breaking down raw material costs to determine the total value of the item.

Here are some other aspects to consider when calculating customs duty:

• Basic customs duty is the first charge levied as a specific or ad valorem price.
• 10% Social welfare surcharge is applicable.
• IGST includes BCD, social welfare surcharge and the value of the goods.
• GST Compensation cess
• Anti-dumping and safeguard duty , in exceptional cases.
• 1% of Customs handling fee

Also read: What Taxes Has GST Replaced And How Is GST Beneficial?

Latest Custom Duty rates in India:

eSanchit

Launched by the Central Board of Indirect Taxes and Customs (CBIC), eSanchit stands for e-storage of Indirect Tax documents. It eliminates the need to submit hard copy documents for assessment by paving the way to digitise and streamline the taxation system in India. You can access the eSanchit portal on the ICEGATE website.Any registered importer or exporter of ICEGATE can upload custom documents and receive paperless processing through the eSanchit feature. Online filing on the portal reduces clearance time by eliminating physical interaction between traders and customs agents and works well when conducting trading business across borders. Also read: Regular Scheme Under GST: What is Composition Scheme?

Understanding import duty and correctly calculating it is essential for anyone importing goods to the country. Calculating is an overwhelming process, especially for new traders. But with all the information in one place, you can educate yourself and use government tools to make more informed decisions.