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Customs duty aims to create a level playing field for domestic producers by making imported goods relatively more expensive. It also serves to monitor and regulate the movement of controlled items, ensuring compliance with national and international trade laws.
What is customs duty?
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Customs duty is a tax imposed on goods as they move across international borders. Simply put, it is a charge applied to the import and export of products. Governments levy customs duties to generate revenue, protect local industries, and manage the flow of goods in and out of the country. The applicable rate of customs duty depends on factors such as the origin of the goods and the materials they are made from. In India, customs duty is governed by the Customs Act, 1962, and is administered by the Central Board of Excise and Customs (CBEC).
Union Budget 2025 updates on customs duty
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The Union Budget 2025 introduced several major changes to simplify customs duty, reduce costs for key industries, and support domestic manufacturing. Here is a clear breakdown of the updates:
1. Rationalisation of customs tariff
- Seven tariff rates have been further reduced, leaving only eight slabs (including zero).
- Only one cess or surcharge will apply per item.
- Social Welfare Surcharge has been removed on 82 tariff lines where cess is applied.
2. Duty relief on medicines and healthcare
- Full Basic Customs Duty (BCD) exemption for 36 lifesaving drugs, including cancer and rare-disease treatments.
- Six medicines will attract a concessional 5% duty rate.
- BCD exemption extended to patient-assistance programmes where medicines are provided free of cost.
- 37 new medicines and 13 additional assistance programmes have been added.
3. Industry-specific customs duty proposals
Critical Minerals
- Full BCD exemption on 25 critical minerals not available in India.
- 12 additional minerals now fully exempt to boost domestic manufacturing.
Textiles
- Full exemption on two types of shuttle-less looms.
- BCD on knitted fabrics set at 20% or Rs.115 per kg (whichever is higher).
Electronics
- BCD on IFPD increased to 20%; open-cell components reduced to 5%.
- Open-cell components for LCD/LED TVs fully exempt.
Lithium-Ion Batteries
- BCD exemption on 35 EV battery and 28 mobile battery manufacturing capital goods.
Shipping
- BCD exemption on shipbuilding materials extended for 10 years.
- The same exemption applied to shipbreaking.
Handicrafts
- Export time limit extended to 1 year (with an additional 3-month extension if required).
- Nine more duty-free inputs added for artisans.
Leather
- Full BCD exemption on Wet Blue leather.
- Small tanners get 20% export-duty exemption on crust leather.
Objective of custom duty
- Revenue generation: Customs duties are a significant source of revenue for governments, helping to fund public services and infrastructure.
- Protection of domestic industries: By imposing duties on imported goods, domestic industries are shielded from foreign competition, promoting local businesses and employment.
- Regulation of trade: Customs duties help control the import and export of goods, ensuring compliance with national and international trade regulations.
- Prevention of illegal trade: Imposing customs duties discourages smuggling and the illegal trade of restricted or prohibited items.
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Types of customs duty
The customs duty framework for import custom duty in India includes nine major categories that apply depending on the nature of the goods, their country of origin and the applicable legal provisions. Understanding these types of customs duty helps importers determine the taxes, surcharges and other levies payable when goods enter India.
| Type of customs duty | Rate | Where it applies |
|---|---|---|
| Basic Customs Duty (BCD) | 0% to 100% (depending on the HS code and country of origin) | Charged on most imported goods. The applicable rate depends on the product classification, country of origin and material composition. Certain essential goods, such as specified lifesaving medicines, are exempt. |
| Special Additional Duty (SAD)* | 4% | Applied on certain imported goods under the earlier indirect tax regime to offset local VAT or sales tax. SAD has largely been subsumed under the GST regime for imports. |
| Countervailing Duty (CVD)* | Product-specific | Applied under specified provisions to counter subsidies or tax advantages provided by the exporting country and to maintain a level playing field for domestic manufacturers. |
| Social Welfare Surcharge (SWS) | Generally 10% of the Basic Customs Duty, unless otherwise notified | Introduced in 2018 to replace the Education Cess and Secondary and Higher Education Cess. It is calculated on the applicable Basic Customs Duty. |
| Anti-Dumping Duty | As specified in government notifications | Levied on imported goods sold below their normal value when such imports cause or threaten material injury to domestic industry. |
| Compensation Cess | Product-specific | Levied on notified goods, such as certain automobiles, tobacco products and coal, in accordance with the applicable GST provisions. |
| Safeguard Duty | As specified in government notifications | Imposed when a sudden increase in imports causes or is likely to cause serious injury to domestic producers. |
| Integrated GST (IGST) | Nil (0%), 0.25%, 3%, 5%, 18%, or 40%, depending on the product or service classification | The Nil rate applies to specified essential goods and services, while 0.25% is applicable to rough and uncut precious stones and 3% to gold, silver, jewellery, and certain precious metals. The 5% slab covers many essential goods and selected services, 18% is the standard rate for most taxable supplies, and 40% applies to notified luxury and demerit (sin) goods. |
| Customs Handling Fee | As applicable under the relevant customs regulations | Charged where applicable for customs processing or handling in accordance with the prescribed procedures. |
*Special Additional Duty (SAD) and Countervailing Duty (CVD) continue to be recognised as types of customs duty in India, although their application has largely changed following the introduction of the Goods and Services Tax (GST) on 1 July 2017.
The applicable customs duty on imported goods is determined by the product's Harmonised System (HS) code, country of origin, customs valuation and the notifications issued by the Government of India from time to time.
Importance of custom duty
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Customs duty serves both as a trade regulation tool and a key source of revenue for the government. Here’s why it holds significant importance:
- Regulates foreign trade: By imposing tariffs on imported goods, customs duty helps control the volume and type of goods entering the country, ensuring balance in international trade.
- Protects domestic industries: Higher customs duties on certain imports make foreign products less competitive, encouraging consumers to opt for local alternatives and supporting homegrown businesses.
- Ensures fair competition: Customs duty prevents market distortion caused by underpriced imports, thereby maintaining a level playing field for Indian manufacturers.
- Generates government revenue: The taxes collected through customs duties contribute substantially to national revenue, helping to fund public services and infrastructure development.
- Supports welfare and development: Revenue from customs duty is often directed towards key sectors like education, healthcare, transport, and rural development, promoting overall economic progress.
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Factors affecting the calculation of customs duty
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The calculation of customs duty in India depends on five key factors: the nature of the goods, their value, the country of origin, applicable trade agreements, and the purpose of import or export. Together, these factors determine the customs duty payable on imported or exported goods. For example, goods imported from countries covered under a Free Trade Agreement (FTA) may qualify for reduced or even 0% customs duty on eligible items.
- Nature of goods: The type and classification of goods determine the applicable customs duty rates, with different products attracting different tariffs.
- Value of goods: Customs duty is generally calculated on the assessable value of the goods, which is based on the transaction value and other applicable charges.
- Country of origin: The country where the goods are manufactured can influence the duty payable, particularly when preferential tariff benefits are available.
- Trade agreements: Bilateral or multilateral trade agreements may reduce or exempt customs duty on specified goods imported from partner countries.
- Purpose of import or export: Whether goods are imported for personal, commercial, industrial, or other approved purposes can affect the applicable customs duty rate.
How to calculate customs duty in India?
To calculate customs duty in India, follow the six-step CIF method: determine the CIF value, identify the applicable BCD, calculate SWS, determine IGST, add the duties and arrive at the total landed cost. This customs duty calculation India method provides an estimate, but the actual amount depends on the product's HSN classification, applicable exemptions and current customs rates. For accurate calculations, businesses should verify the applicable rates using the ICEGATE customs duty calculator.
Step 1: Determine the CIF value
Calculate the Cost, Insurance and Freight (CIF) value of the imported goods. It generally includes the product cost, insurance and freight up to the Indian port.
Step 2: Calculate Basic Customs Duty (BCD)
Identify the applicable BCD rate based on the product's HSN classification and calculate it on the assessable value.
Step 3: Calculate Social Welfare Surcharge (SWS)
SWS is generally calculated as 10% of the BCD, subject to applicable rules and exemptions.
Step 4: Calculate IGST
Calculate IGST on the applicable value, which generally includes the CIF value, BCD and SWS.
Step 5: Add the applicable duties
Add BCD, SWS and IGST to determine the total customs duty payable.
Step 6: Calculate the total landed cost
Add the customs duties to the CIF value to estimate the total landed cost of the imported goods.
How much custom duty in India? Worked examples
Example 1: Business equipment import: If the CIF value is Rs.1,00,000, BCD is 10% (Rs.10,000), SWS is 10% of BCD (Rs.1,000), and IGST is 18% of Rs.1,11,000 (Rs.19,980), the total landed cost is Rs.1,30,980.
Example 2: Mobile phone import: For a CIF value of Rs.50,000, BCD at 20% is Rs.10,000, SWS at 10% of BCD is Rs.1,000, and IGST at 18% of Rs.61,000 is Rs.10,980, making the total landed cost Rs.71,980.
Use the ICEGATE customs duty calculator to verify the applicable duty for your specific import.
Example
Priya, a 38-year-old electronics importer in Mumbai, sources mobile phones from China with a CIF value of Rs.50,000 per unit. Using the ICEGATE duty calculator, she estimates the applicable duties and landed cost, helping her set competitive retail prices before placing the order.
Latest custom duty rates in India
The customs duty applicable to import custom duty in India ranges from 0% to 100%, depending on the goods category, product classification and applicable government notifications, with the following rates reflecting key changes announced after the Union Budget 2025.
| Customs duty category | Customs duty rate | Budget 2025 change |
|---|---|---|
| Electronics | Up to 20% | Basic Customs Duty increased on Interactive Flat Panel Displays (IFPDs); open-cell components for TVs exempt from BCD. |
| Automobiles | Up to 25% | No change |
| Textiles | 15%–20% (knitted fabrics subject to 20% or Rs. 115 per kg, whichever is higher) | Revised duty structure for knitted fabrics introduced. |
| Agricultural products | Around 10% (product-specific) | No change |
| Pharmaceuticals | 0% for 36 specified lifesaving drugs; 5% for 6 specified medicines | Major exemptions announced for specified medicines. |
| Critical minerals | 0% for 25 specified critical minerals | New exemption introduced. |
| EV battery capital goods | 0% | New exemption introduced for specified capital goods used in EV battery manufacturing. |
| Wet blue leather | 0% | New exemption introduced. |
| Coal | As applicable under the relevant customs and cess notifications | No change |
| General manufactured goods | Generally 7.5%–20%, depending on the HS code | Duty slabs rationalised for selected products. |
| Basic Customs Duty (maximum tariff) | Up to 100% for selected notified goods | Product-specific changes only. |
How to pay customs duty online?
You can pay customs duty online via the ICEGATE e-payment portal in 8 steps using your Importer Exporter Code (IEC) or login credentials to complete secure payment and download the receipt instantly.
- Visit the ICEGATE e-payment portal.
- Enter your Importer Exporter Code (IEC) or ICEGATE login details.
- Select the e-payment option.
- View all pending challans displayed under your profile.
- Choose the challan you wish to pay and select your preferred bank or payment mode.
- You will be redirected to your bank’s payment gateway.
- Complete the payment.
- After payment, return to the ICEGATE portal and click ‘Print’ to download or save the payment receipt.
Custom duty exemptions in India
Customs duty exemption India provisions generally cover four categories: essential goods, specified medicines and medical products, inputs for exports, and goods covered by sector- or scheme-specific concessions. For traders, import custom duty in India may also be reduced or refunded under eligible export schemes.
| Exemption category | Example/Benefit |
|---|---|
| Essential goods | Specified goods may attract nil or reduced BCD. |
| Medicines and medical products | 36 lifesaving drugs are available at 0% duty under specified provisions. |
| Critical minerals | 25 critical minerals attract 0% customs duty under applicable provisions. |
| Export-related inputs | Eligible exporters can receive duty relief on inputs used for export production. |
| Capital goods | Certain capital goods may qualify for concessional or nil duty under specific schemes. |
| Sector-specific exemptions | Eligible industries may receive exemptions subject to prescribed conditions. |
| Import custom duty in India: Trader scheme | Benefit | Who is eligible |
|---|---|---|
| Duty Drawback Scheme | Refund of eligible BCD paid on inputs used in exported goods | Exporters manufacturing goods for export |
| Advance Authorisation Scheme | Duty-free import of specified inputs for export production | Exporters meeting prescribed export obligations |
| EPCG Scheme | Capital goods may be imported at zero or concessional duty | Exporters meeting prescribed export obligations |
| SEZ Benefits | Full customs duty exemption on approved imports | Eligible SEZ units |
Businesses can explore a Bajaj Finance Business Loan to help fund eligible import and working-capital requirements.
Highest customs duty categories in India
The highest customs duty rates in India generally apply to alcoholic beverages, certain imported automobiles, and tobacco products, although the applicable rate depends on the product classification under the Customs Tariff Act and the latest government notifications. Some imported alcoholic beverages attract Basic Customs Duty (BCD) of up to 150%, while certain completely built-up (CBU) cars and tobacco products may attract BCD of up to 100%.
| Customs duty category | Maximum BCD rate | Example products |
|---|---|---|
| Alcoholic beverages | Up to 150% | Imported spirits, whisky, wine |
| Automobiles | Up to 100% | Completely built-up (CBU) cars and SUVs |
| Tobacco products | Up to 100% | Cigarettes, cigars, smoking tobacco |
| Electronics (Interactive Flat Panel Displays) | Up to 20% | Interactive flat panel displays (IFPDs) |
| Textiles | 20% or ₹115/kg, whichever is higher | Knitted fabric imports |
The applicable custom duty in India depends on the product's HSN classification, country of origin, applicable trade agreements, and the prevailing customs tariff notified by the Government.
Minimum customs duty exemption for Indian exporters
While exports themselves are generally not subject to customs duty, Indian exporters can benefit from several customs duty exemption and refund schemes that reduce or eliminate duties paid on imported inputs used for export production. These schemes are designed to improve export competitiveness and lower production costs.
- Duty Drawback Scheme: Refunds eligible customs duties paid on inputs used in the manufacture of exported goods.
- Advance Authorisation Scheme: Allows duty-free import of raw materials and components used to manufacture export products, subject to prescribed conditions.
- Export Promotion Capital Goods (EPCG) Scheme: Permits the import of eligible capital goods at concessional or zero customs duty against specified export obligations.
- Special Economic Zone (SEZ) benefits: Units operating in SEZs are eligible for customs duty exemptions on approved imports used for authorised operations.
These schemes help reduce the overall custom duty in India for eligible exporters.
FTA agreements and customs duty
Free Trade Agreements (FTAs) allow India to reduce or eliminate customs duty on goods imported from partner countries, based on HS code-specific schedules and certified origin criteria under agreements such as FTA, CEPA and ECTA.
| FTA name | Partner country | Key duty benefit |
|---|---|---|
| ASEAN-India FTA | 10 ASEAN nations | Nil or reduced customs duty on listed manufactured goods |
| India-UAE CEPA (2022) | United Arab Emirates | 90%+ tariff lines reduced or eliminated |
| India-Australia ECTA (2022) | Australia | Nil duty on wool, certain minerals and pharma ingredients |
Importers must submit a valid Certificate of Origin (CoO) to claim preferential tariff rates; without it, standard customs duty under import custom duty in India applies at full applicable rates.
Import duty vs customs duty
Import duty is a type of customs duty that applies specifically to goods entering India, whereas customs duty is the broader term covering duties imposed on both imports and exports under the Customs Act, 1962. Although the terms are often used interchangeably, they have distinct legal meanings.
| Feature | Import duty | Customs duty |
|---|---|---|
| Scope | Applies only to imported goods entering India | Covers duties on imports and exports under the Customs Act, 1962 |
| Governing law | Levied under Section 12 of the Customs Act, 1962 | Governed by the Customs Act, 1962 and related tariff provisions |
| Types of duty | Primarily includes Basic Customs Duty (BCD) on imports | May include BCD, IGST, Social Welfare Surcharge (SWS), anti-dumping duty, safeguard duty, and other applicable levies |
| Who pays it | Importer of the goods | Importer or exporter, depending on the nature of the duty |
| Common usage | Refers specifically to tax on imported goods | Broader legal term often used to describe all customs-related duties in India |
Understanding what is custom duty and how it differs from import duty helps businesses determine the correct duties applicable to their international trade transactions.
Conclusion
Customs duty plays a crucial role in regulating international trade, protecting domestic industries, and generating government revenue. Understanding its objectives, types, calculation factors, and payment methods is essential for businesses engaged in import and export activities. Staying updated on the latest customs duty rates can help businesses make informed decisions and comply with regulations effectively.
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Frequently Asked Questions
Overview
What is meant by customs duty?
Customs duty is a tax imposed on goods imported into or exported from a country. It is levied by the government to regulate international trade, protect domestic industries, and generate revenue. The duty is calculated based on the value, type, and origin of the goods, and varies according to trade agreements and national policies. Customs duty ensures that imported goods do not unfairly compete with locally produced items, promoting economic stability and growth.
Who pays customs duty?
Customs duty is typically paid by the importer of goods into a country. The importer is responsible for settling the duty charges to the customs authorities upon the goods' arrival at the port of entry. This payment is necessary before the goods can be cleared for release and entry into the domestic market. Occasionally, exporters might also be liable for customs duty, depending on the terms of trade agreements and the specific nature of the transaction.
What is the rule of customs duty?
The rule of customs duty involves the application of taxes on goods imported or exported across international borders. These duties are calculated based on the assessable value, which includes the cost, insurance, and freight (CIF). The rates depend on the type of goods, their classification, and applicable trade agreements. Customs duty aims to regulate trade, protect domestic industries, and generate government revenue, ensuring compliance with national and international laws and standards.
What is the principle of customs duty?
The principle of customs duty is to regulate international trade by imposing taxes on goods crossing borders. This ensures the protection of domestic industries from foreign competition, generates revenue for the government, and controls the import and export of goods. Customs duty also helps maintain fair trade practices, prevents smuggling, and ensures compliance with trade agreements and national laws. It balances the interests of consumers, businesses, and the government in the global market.
Can I clear customs without paying duty in advance?
Yes, but only in specific situations permitted under customs regulations. Authorised Economic Operators (AEOs) can use the Deferred Payment of Import Duties Scheme, which allows customs duty to be paid after goods are cleared within the prescribed timeline. In certain cases, provisional assessment or bonded warehouse facilities may also defer duty payment until the final assessment or removal of goods. Businesses that do not qualify for these schemes must generally pay customs duty before clearance.
What is the difference between Basic Customs Duty and IGST on imports?
Basic Customs Duty (BCD) is a customs duty levied on imported goods, while IGST is a GST levied on imports to ensure tax parity between imported and domestically supplied goods.
| Particular | Basic Customs Duty (BCD) | IGST |
| Basis of levy | Assessable value of imported goods | Assessable value plus applicable BCD and other prescribed duties |
| Purpose | Protect domestic industry and generate revenue | Levy GST on imported goods in line with domestic GST provisions |
Should I use a customs broker for exporting goods from India?
Yes, using a customs broker is recommended for high-value, complex, or multi-country export shipments, as they can help with documentation, customs clearance, and regulatory compliance. For simple or occasional exports, businesses may complete the process themselves if they understand the applicable procedures. Exporters planning to expand internationally can also explore a Bajaj Finance Business Loan to support their working capital requirements.
What happens if I do not pay customs duty on time?
Failure to pay customs duty on time can result in interest, penalties, and delays in clearing your goods. Under Section 28AA of the Customs Act, interest is generally charged at 15% per annum on the outstanding duty amount from the due date until payment. Continued non-compliance may also lead to recovery proceedings and other legal action.
Can customs duty be refunded after payment?
Yes. Customs duty can be refunded under Section 27 of the Customs Act if the duty was paid in excess or was not legally payable. A refund application must generally be filed within one year from the date of duty payment, along with the prescribed documents and supporting evidence. The claim is processed only after verification by the customs authorities.
How can a business loan help manage customs duty payments?
A business loan can help businesses manage customs duty payments by providing timely working capital for imports, inventory purchases, and other trade-related expenses without disrupting cash flow. Bajaj Finance offers business loans of up to ₹80 lakh for eligible applicants. Enter your mobile number to check your business loan offer from Bajaj Finance and explore funding options for your business.
What are the customs duty rates for importing goods to India?
Customs duty rates in India vary by the imported product, HSN classification, country of origin and applicable exemptions. Import costs may include Basic Customs Duty (BCD), Social Welfare Surcharge (SWS) and IGST, while anti-dumping or safeguard duties may also apply. Check the applicable tariff for the specific goods before importing.
What are the responsibilities of a customs agent in India?
A customs agent in India helps importers and exporters manage documentation, customs clearance and regulatory compliance. Key responsibilities include: preparing and submitting customs documents, co-ordinating cargo clearance with customs authorities, ensuring compliance with applicable customs laws and procedures, and communicating with ports, shipping lines and other stakeholders. Using a customs agent can simplify procedures and help businesses avoid delays caused by documentation or compliance issues.
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