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Research by Country/Region January 21, 2018  
Calculation of Customs Duties for IT Products Exported to India

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Determining customs duties and taxes can be simplified into seven steps. Below are definitions and explanations of the procedures used for calculating customs duties and taxes on imports into India. Click on each step to be taken directly to the Government of India’s Central Board of Excise and Customs (CBEC) to determine what specific steps must be taken to determine your customs duty obligations. For a detailed explanation of India’s export and import policy for 2003 please visit the website of the Government of India, Director General of Foreign Trade.

Step 1: Obtain the Tariff Classification of the Goods

All goods imported into India are classified into categories labeled "Headings" and "Sub-headings" for the purpose of levying duties. A specific rate of duty has been prescribed for each Sub-heading. "Classification of Goods" is the process of assigning the goods to be imported to a specific Heading or Sub-heading. The classifications are part of the Schedules to the Customs Tariff Act, 1975, commonly referred to as the tariff, and are based on the Harmonized System of Nomenclature established by the World Customs Organization.

The import invoice should indicate all items of purchase. For computing the total duty payable on each item, you must first identify the various types of duties leviable on each item. You are required to determine the classification of each of the items of import as given in the import invoice based on your understanding of the item description. The rules to be followed while determining the classification are given in the General Rules of Interpretation of the First Schedule to the Customs Tariff Act,1975.

Step 2: Calculate the Basic Customs Duty

The Basic Customs Duty is specified for each Heading or Sub-Heading in the First Schedule to the Customs Tariff Act, 1975. There are different rates of duty for different commodities. For U.S. exporters, the duty rates in column No. 4 (labeled as "Standard") of the tariff are applicable. Column No. 5 (labeled as “Preferential Areas”) does not apply to U.S. exporters; it is only applicable to countries with bilateral trade agreements with India.

There are two methods of calculating duties. The most common method of calculation is based on a percentage of the value of the goods, known as an ad valorem duty. The rate of duty in percentage, in the case of ad valorem duties, has to be applied on the Cost Insurance and Freight. Duties must sometimes be calculated on a specific rate, which is usually based on a unit of measurement, which is specified in the tariff entry in column No. 3.

Step 3: Calculate the Customs Surcharge

A Surcharge of 10% of the Basic Customs Duty is leviable on imported goods under Section 90 of the Finance Act, 2000 (unless exempted by a notification). According to the Indian Customs website (see the Step 3 link, Sub-section 2) the Surcharge has not been effective since March 31, 2001.

Step 4: Calculate the Additional Duty of Customs

Although commonly referred to as a "countervailing duty" (CVD), the correct description of this duty is the Additional Duty of Customs. The Additional Duty of Customs is equal to the excise duty leviable on like goods produced or manufactured domestically in India. This is levied under Section 3 of the Customs Tariff Act, 1975. In order to determine the applicable rate, you have to first obtain the correct classification of the goods. The duties under the Central Excise Tariff are on an ad valorem basis. However, it is important to note that specific rates have been prescribed for some items. The Additional Duty of Customs is based on the total of the assessable value (generally the transaction value - roughly equal to the CIF value) and the basic customs duty.

A manufacturer importing goods to be used as inputs for the manufacture of other goods is generally eligible for obtaining credit (CENVAT credit) equal to the Additional Duty of Customs paid on the imported goods. This duty amount is eligible for credit under input duty Central Excise Rules, 1944. This credit can be used for paying central excise duties on your goods manufactured in India.

Step 5: Calculate the Special Additional Duty (SAD)

Imported goods are also liable for a Special Additional Duty at a rate specified in Section 3A of the Customs Tariff Act, 1975. The Special Additional Duty is usually 4% for IT products. The amount of Special Additional Duty is calculated by applying this rate on the total value of the assessable value, the Basic Customs Duty, and the Additional Duty of Customs described in the previous steps. Please note that effective January 9, 2004 the SAD has been repealed. For further information please read the official Government of India press release.

Step 6: Calculate Any Additional Duties

It is necessary to determine whether there are any additional duties on the goods to be imported. Some of the duties are commodity specific and would be applicable regardless of the time of import. These include assessment taxes under various enactments and Additional Duties on specified commodities. There are certain other duties that are specific to the country of origin. The following duties may need to be considered:
    • Countervailing Duty on bounty-fed articles is leviable under Section 9, of the Customs Tariff Act 1975. No such duty is being levied at present.
    • Anti-Dumping Duty (under Section 9A, Customs Tariff Act 1975) on specified goods imported from specified countries to protect indigenous industry from injury resulting from dumping of goods. This is periodically notified and published
    • Safeguard Duty (under Section 8B of the Customs Tariff Act, 1975) is applicable on certain goods at the time of import for specified periods of time. The Safeguard Duty is designed to reduce the level of imports of specific goods, which may be injurious to the domestic Indian industry.

Step 7: Determine Your Eligibility for Exemptions

Exemptions and concessions can be granted in a number of ways and are obviously worth checking out. Click on the Step 7 link and then click “General Exemptions”, which will display a list of the current exemptions. A complete list of all current tariff notifications, for exemptions and increases, can be found the "Customs Tariff Currently Valid Notifications" page. Some exemptions are briefly examined below.

Exemption by Notification: The Central Government may notify by publication in the Official Gazette certain exemptions and concessions that may be conditional or absolute. There are general exemptions given to a variety of items imported under certain conditions. These include exemption of imports for promotion of exports, import by UN bodies, defense related imports among others. There are also exemptions that are unconditional and are applicable across the board. There are other exemptions based on the specific end use of the goods.

Preferential Rates: Preferential rates of customs are applicable on goods imported from certain countries such as Sri Lanka, Mauritius, Seychelles and Tonga, provided certain conditions are satisfied. The goods in question must actually be manufactured or produced in the preferential areas. Rules have been established to determine whether the goods have been manufactured or produced in the preferential areas. It is essential to determine the origin of the goods in order to be eligible for a preferential duty rate.

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