Import Duty Calculation India

1. The Foundation: Determining the Assessable Value (CIF)

Before any duty is applied, you must first establish the Assessable Value (AV) of your goods. This is the value that Indian Customs uses as the base for calculating the majority of duties and is typically calculated on a Cost, Insurance, and Freight (CIF) basis.

Key Rules for Valuation:

• Cost of Goods (FOB): The price paid to the seller.

• Cost of Freight: The actual shipping cost. If the exact cost is unknown, Indian Customs assumes it to be 20% of the FOB value.

• Cost of Insurance: The actual insurance cost. If the cost is unknown, Indian Customs assumes it to be 1.125% of the FOB value.

Globax Insight: Getting an accurate commercial invoice, freight bill, and insurance certificate is vital. Using the 20% and 1.125% assumptions can sometimes inflate your AV and, consequently, your total duty.

2. The Critical First Step: The HSN Code

The Harmonized System of Nomenclature (HSN) code is the global classification system for trade products. In India, it is usually an 8-digit code that defines the duty rates.

• Why it Matters: The correct HSN code dictates the specific rates for Basic Customs Duty (BCD) and Integrated GST (IGST).

• The Risk: Using an incorrect HSN code can lead to duty underpayment (resulting in penalties) or duty overpayment (losing money).

Action: Always verify your supplier’s HSN code against the latest Indian Customs Tariff Schedule, taking into account any applicable Free Trade Agreements (FTAs) that might offer preferential (lower) rates based on the Country of Origin.

3. The Three Core Duty Components (The Calculation Chain)

The total Import Duty payable is a chain calculation. Each subsequent component is calculated on the value plus the duties already applied.

A. Basic Customs Duty (BCD)

This is the primary duty levied on the import.

• Calculation Base: Applied directly to the Assessable Value (AV).

• Rate: Varies widely (0% to over 100%) and is determined by the HSN code.

B. Social Welfare Surcharge (SWS)

This is a surcharge levied to fund social welfare programs.

• Calculation Base: Applied on the BCD Amount.

• Rate: Generally 10% of the BCD (unless specifically exempted by notification).

C. Integrated Goods and Services Tax (IGST)

This is the tax levied on imports, equivalent to the domestic GST, and it is recoverable for registered businesses through Input Tax Credit (ITC).

• Calculation Base (The IGST Value): Applied to the sum of the Assessable Value, BCD, and SWS.

• Rate: Matches the domestic GST rate for that product (typically 5%, 12%, 18%, or 28%).

4. The Grand Total and Other Duties

The Total Import Duty and Taxes Payable is the sum of all the duties calculated above.

Other Applicable Duties (If any):

• Anti-Dumping Duty (ADD): Imposed to prevent selling goods below fair market value (dumping).

• Safeguard Duty: Imposed temporarily to protect domestic industry from a sudden surge of imports.

• Compensation Cess: Applied to certain goods like tobacco, luxury cars, and aerated drinks.

Example Calculation

Let’s assume you import a product with the following details:

Maximize Profitability: Your Checklist

1. Verify HSN Code: Use the ICEGATE portal or CBIC website to confirm the correct HSN and BCD/IGST rates.

2. Utilise FTAs: Check if the country of origin qualifies for preferential duty rates under any Free Trade Agreements (FTAs) India is a party to.

3. Claim ITC: Ensure you are GST-registered and correctly quote your GSTIN on the Bill of Entry to claim the Input Tax Credit for the IGST paid.