Customs duty is a kind of indirect tax applied to both the export and import of services and goods. The tax applied to the importing services & goods is a famous import duty, while the imposed taxes on the export of services and goods is known as export duty.
Did you know?
The government has imposed such taxes on the import and export of services and goods to increase revenue and protect the local establishment from competition from other nations.
Import Duties in India
The Indian government implemented a significant change to the taxes collection systems of the country, known as GST (goods and service tax). This was a brand new collection of tax systems where customers must pay tax when engaging in service or product. The tax system used to be complicated because many taxes, including value-added tax, central excise or service tax, state tax, etc., were implemented on both services and goods. They were imposed on services and goods, and GST has subsumed every single of the taxes, so there's now one tax.
Customs duties are a levy imposed on export or import items if we talk about customs duties. It is a type of tax that is usually calculated according to how much value is attached to the item that is being exported or imported, or some other measurement like the weight or volume.
Custom duties are typically applied to generate an income stream for the government. Still, they can also be in place to protect a sector from cheaper imports. Customs duties can be particularly efficient when they combat the soaring prices of goods imported abroad.
The main negative effect of customs duties is the country's buyers from which the goods are imported. If the duty is added to the cost paid by buyers, they're indirectly contributing to the cost to their local government. Customs duties can also affect the price of products within a nation, as they decrease the competition within the nation, resulting in less requirement to make a difference.
Also Read: Overview of Custom Duty in India
Custom Duty Types in India
Customs duty is charged nearly everywhere on all goods imported into a nation. They are classified into:
- Countervailing Duty (CVD)
- Anti-dumping Duty
- Other Customs Duty and Special CVD
- The Basic Customs Duty (BCD)
- Protective Duty
If we talk about customs duties, they are charged on virtually all products imported into the nation. However, export duties are charged on certain products specified on the 2nd schedule. Also, the customs duties do not apply to life-saving medications and food grains with their fertilisers. For industrial goods, the rate has been reduced to 15%. The customs duty is based on the worth of the transaction for the product.
Also, they are split into various taxes, including:
Basic Customs Duty
The tax is levied on import products under the customs act from section 12 in 1962. This tax is calculated per the 1st schedule of the Customs Tariff Act 1975.
Extra Customs Duty
It is imposed on products covered in the third section of the Customs Tariff Act, 1975. Its tax rates are like that of the central excise duty charged on items produced in India.
Education Cess
The rate is 2%, and there is an additional education tax of 1%, part of the duty on customs.
Protection Duty
The tax is imposed in order to safeguard indigenous companies and products from imports. The tariff commission will be the one deciding the rate.
Anti-Dumping Duty
This is charged if the cost of a certain item is imported at a lower price than the fair market value.
Safeguard Duty
This is imposed because customs officials believe that a certain product's exports could be detrimental to the nation's economic health.
How to Calculate Import Duty?
Customs duties are determined based on the ad valorem principle on the worth of merchandise. The item's value is calculated based on the rules outlined in Rule 3 (i) in the Rules of Customs Valuation in 2007.
Also, you can take advantage of the customs import duty calculator in India, which is accessible through the website of CBEC. In the context of the electronic and computerised service initiative in 2009, India launched a website-based service called ICEGATE. ICEGATE refers to the Indian Electronic Interchange Gateway or customs electronic commerce abbreviation. Also, it is a platform that allows calculations of duties rates, export-import declaration of shipping bills, goods, electronic payment, and the verification of export and import licenses. The IGST exports and imports are based on the product's value and the customs duty that is the principal charge on the product.
Customs Duty Payments
You can pay for customs duty on the internet with just a few steps:
- Log in to the online payment portal at ICEGATE which is set up by Central Board of Excise and Customs as a CUSTOM E-Payment Gateway (CEG) (https://epayment.icegate.gov.in/epayment/locationAction.action).
- Enter the import-export code (IEC).
- Then, click on the e-payment.
- You'll now fill in the details about the overdue challans.
- Select the challan to be paid as well as the banking or payment method.
- You will now be directed to the bank's payment portal.
- Make the payment.
- The payment confirmation will appear next; select print to retain a record of your purchase.
Importation of Services in the Framework of GST
The services for importing covered under the GST Act 2017 are the only services by a provider who operates from outside India but is receiving service from India. The location where the
services are provided is also within India. According to the provisions mentioned in section 7(1), (b) of the Central government services and goods Act of 2017, only imported services are considered if the services are provided as part of the normal course of business.
In other words, the services that are not subject to consideration cannot be considered a supply. But, testing your business isn't required for the import of services to be classified as the supply.
According to the provisions in CGST Act I, 2017, imported services by a registered taxpayer from the family members or an individual who is in the course of business is considered as supply, no matter where the purchase has been made without consideration as stated in CGST Act, 2017 (section 25). Inside GST, the imports of services/goods are considered interstate goods and fall into the umbrella of included tax. Anyone who imports services or goods must pay tax on a reverse charge basis.
Also Read: Importing from China to India: All You Need to Know
Credit for Input Tax
In the GST tax system, registered importers use the IGST tax imposed on them as a tax credit for input. Importers can avail of the tax credit for input to pay taxes in the supply of outward goods.
In addition to the tax credit for inputs, the importer may benefit from GST Compensation Cess before transferring it to other suppliers within the providing chain. The importer should mention their GSTIN (GST registry number) on their entry bill, and it will get all the input tax credit from IGST & GST compensation cess. Importing this whole system requires a lot of capital investment, but once you succeed, the amount you invest will be returned in no time.
GST for Exporters
Before GST was implemented, the tax was also imposed on exports of services and goods. In this new taxation system, any export of goods and services in India to any other location that is not India is classified as zero-rated supplies. This means that there is no GST charged to exporters. Taxpayers registered as taxable, and export goods or services to countries outside of the country are entitled to a refund.
Conclusion
Now, you know everything about import tax in India. Don't make any importing/exporting strategy without considering (and calculating, if possible) the import tax. Also, avoid adopting any shady techniques in order to save taxes, and you may face extremely heavy charges.
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