India’s import and export system is governed by the Foreign Trade (Development & Regulation) Act of 1992 (full text) and India’s Export Import (EXIM) Policy. Imports and exports of all goods are free, except for the items regulated by the EXIM policy or any other law currently in force. Registration with regional licensing authority is a prerequisite for the import and export of goods. The customs will not allow for clearance of goods unless the importer has obtained an Import Export Code (IEC) from the regional authority.
The Indian Trade Classification (ITC)-Harmonized System (HS) classifies goods into three categories:
Goods not specified in the above mentioned categories can be freely imported without any restriction, if the importer has obtained a valid IEC. There is no need to obtain any import license or permission to import such goods. Most of the goods can be freely imported in India.
Licensed (Restricted) Items
Restricted items can be imported only after obtaining an import license from the relevant regional licensing authority. The goods covered by the license shall be disposed of in the manner specified by the license authority, which should be clearly indicated in the license itself. The list of restricted goods is provided in ITC (HS). An import license is valid for 24 months for capital goods, and 18 months for all other goods.
Canalized goods are items which may only be imported using specific procedures or methods of transport. The list of canalized goods can be found in the ITC (HS). Goods in this category can be imported only through canalizing agencies. The main canalized items are currently petroleum products, bulk agricultural products, such as grains and vegetable oils, and some pharmaceutical products.
These are the goods listed in ITC (HS) which are strictly prohibited on all import channels in India. These include wild animals, tallow fat and oils of animal origin, animal rennet, and unprocessed ivory.
Just like imports, goods can be exported freely if they are not mentioned in the classification of ITC (HS). Below follows the classification of goods for export:
- State Trading Enterprise
Before exporting any restricted goods, the exporter must first obtain a license explicitly permitting the exporter to do so. The restricted goods must be exported through a set of procedures/conditions, which are detailed in the license.
These are the items which cannot be exported at all. The vast majority of these include wild animals, and animal articles that may carry a risk of infection.
State Trading Enterprise (STE)
Certain items can be exported only through designated STEs. The export of such items is subject to the conditions specified in the EXIM policy.
Types of Duties
There are many types of duties that are levied in India on imports and exports. A list of these duties follows below:
Basic duty is the typical tax rate that is applied to goods. The rates of custom duties are specified in the First and Second Schedules of the Customs Tariff Act of 1975. The First Schedule contains rates of import duty, and the second schedule contains rates of export duties. Most of the items in India are exempt from custom duty, which is generally levied on imports.
The first schedule contains two rates: Standard rate and preferential rate. The preferential rate is lower than the standard rate. When goods are imported from a place specified by the central government (CG) for lower rates, the preferential rate is applicable. In any other case, the standard rate will be applicable. If the CG has signed a trade agreement with the country of origin, then the CG may opt to charge a lower basic duty than indicated in the first schedule.
In addition to the basic duty on imported goods, a countervailing duty (CVD) is also applicable to imported goods. The rate of duty is equal to the rate of excise applied to goods manufactured in India. If the article is not manufactured in India, then goods of a similar nature are used to determine the correct duty amount. If there are different rates of duty on similar goods, then the highest rates of the known products will be applied to the article in question. All products imported by Special Economic Zones (SEZ) enjoy zero percent CVD.
Special Additional Countervailing Duty (known as Special CVD)
Special CVD tax is application on all items. It is levied at the rate of 4 percent of the basic and the excise duty on all imports in order to countervail the VAT or sales tax on local goods in India. This duty can be refunded to traders who sell imported goods in India after charging VAT/Sales tax.
This is levied on specific goods imported from specified countries – including the US – to protect Indian industries. India can impose duties up to, but not exceeding, the margin of dumping, or the difference between the normal value and the export price.
A safeguard duty is a tariff designed to provide protection to domestic goods, favoring them over imported items. If the government determines that increased imports of certain items are having a significantly detrimental effect on domestic competitors, it may opt to levy this duty on those imports to discourage their proliferation. However, the duty does not apply to articles imported from developing countries. The government may exempt imports of any article from this duty. The notification issued by the government in this regard is valid for four years, subject to further extension. However, the total period cannot exceed 10 years from the date of first imposition.
Education and Higher Education Cess
The education cess, simply put, is a tax designed to fund education and healthcare initiatives. An education cess at the rate of 2 percent and higher education cess of 1 percent are levied on the aggregate of duties of customs. However, the aggregate of customs duties does not include the safeguard duties, countervailing duty on subsidized articles, anti-dumping duty, or countervailing duty equivalent to VAT.
Customs duty is payable as a percentage of ‘Value’ which is known as ‘Assessable Value’ or ‘Customs Value.’ The Value may be either:
- ‘Value’ as defined in Section 14 (1) of the Customs Act; or
- ‘Tariff Value’ described under Section 14 (2) of the Customs Act.
Tariff Value – the Tariff Value is fixed by the Central Board of Excise & Customs (CBEC) for any class of imported goods or export goods. Authorities will consider the trend of value of the goods in question while fixing tariff value. Once fixed, the duty is payable as a percentage of this value.
The value of imported goods for the assessment of duty is determined in accordance with the provisions of Section 14 of 1962 and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. According to the rules, the assessable value equal the transaction value of goods as adjusted for freight and cost of insurance, loading, unloading and handling charges.
In the assessable value, the following criteria are included:
- Commission and brokerage;
- Cost of container, which are treated as being one with the goods for customs purposes;
- Cost of packing – labour or materials;
- Materials, components, tools, etc. supplied by buyer;
- Royalties and license fees;
- Value of proceeds of subsequent sales;
- Other payment as condition of sale of goods being valued;
- Cost of transport up to place of importation;
- Landing charges; and
- Cost of insurance
The following costs are excluded from the assessable value:
- Charges for construction, erection, assembly, maintenance or technical assistance undertaken after importation of plant, machinery or equipment;
- Cost of transport after importation;
- Duties and taxes in India; and
- Types of duties on exports and imports in India are covered in the Customs Tariff Act 1975. The Act provides all the laws and regulations related to customs in India.
Customs Handling Fee
The Indian government assesses a one percent customs handling fee on all imports in addition to the applied customs duty.
Editor’s Note: The article has been updated in November 2016 per the latest import and export regulations in India.
This article is an excerpt from the October 2015 issue of India Briefing Magazine, titled “Importing and Exporting in India“. The information has been updated on November 2016. In the magazine, we examine India’s import and export landscape, basic import and export procedures, as well as the customs duties. We note that India’s import-export figures have remained stable despite significant economic changes, summarize the steps that importers and exporters must follow in India, and provide an illustration that financial administration teams may examine to gain a rough estimate of potential duties calculations.
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