Union Budget 2025 updates on customs duty
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.
Whether your business is scaling international operations or aiming to comply with updated trade practices, you can apply for our business loan to manage customs-related expenses efficiently.
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
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.
Factors affecting the calculation of customs duty
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?
Customs duty in India is calculated in six steps using the CIF (Cost, Insurance, and Freight) assessable value of imported goods as the base. If you are wondering how to calculate customs duty, you need to determine the assessable value, identify the applicable duty rates, calculate the relevant duties and surcharges, and apply any eligible exemptions before arriving at the final customs duty payable.
Step 1: Determine the assessable value of goods
Begin by calculating the assessable value, which includes the cost of the goods, freight charges, and insurance costs. This value forms the basis for customs duty calculation. Importers must declare this value accurately to avoid penalties or legal complications.
Step 2: Identify the applicable duty rates
Check the relevant rates of customs duty for the imported goods. These rates depend on factors such as the type of goods, their classification under the Harmonised System of Nomenclature (HSN), and the country of origin.
Step 3: Calculate the Basic Customs Duty (BCD)
Apply the applicable Basic Customs Duty (BCD) rate to the assessable value. The relevant rate can be found in the Customs Tariff Schedule based on the HSN classification of the goods.
Step 4: Calculate the applicable duties
Calculate any additional customs duties or levies that may apply based on the nature of the imported goods and the prevailing customs regulations.
Step 5: Calculate the Social Welfare Surcharge (SWS) and other applicable duties
Calculate the Social Welfare Surcharge (SWS), where applicable, on the Basic Customs Duty in accordance with the prevailing customs provisions. Also consider any other applicable levies, such as anti-dumping duty, safeguard duty, or other notified duties, depending on the nature of the import.
Step 6: Consider exemptions and concessions
Finally, determine whether the imported goods qualify for any exemptions or concessional duty rates under applicable notifications, trade agreements, or government schemes before arriving at the final customs duty payable.
Example
The following example illustrates how customs duty is calculated for imported goods with a Cost, Insurance and Freight (CIF) value of Rs. 1,00,000, assuming a Basic Customs Duty (BCD) of 10% and IGST of 18%.
| Particulars | Calculation | Amount (Rs.) |
|---|
| Assessable value (CIF) | – | 1,00,000 |
| Basic Customs Duty (BCD) | 10% of Rs. 1,00,000 | 10,000 |
| Social Welfare Surcharge (SWS) | 10% of BCD | 1,000 |
| Total customs duty before IGST | BCD + SWS | 11,000 |
| Value for IGST | Rs. 1,00,000 + Rs. 11,000 | 1,11,000 |
| IGST | 18% of Rs. 1,11,000 | 19,980 |
| Total landed cost | Rs. 1,00,000 + Rs. 10,000 + Rs. 1,000 + Rs. 19,980 | 1,30,980 |
In this example, the importer pays Rs. 11,000 as customs duty before IGST. After adding IGST of Rs. 19,980, the total landed cost of importing goods with a CIF value of Rs. 1,00,000 becomes Rs. 1,30,980. The actual customs duty payable may differ depending on the product's Harmonised System (HS) code, country of origin, exemption notifications, applicable trade agreements and other duties or cess prescribed under Indian customs law.
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 (import custom duty in India) is fully exempt for select essential categories such as lifesaving medicines, critical minerals, agricultural inputs, EV battery manufacturing capital goods, shipbuilding materials and specified patient assistance drugs to reduce costs and support essential sectors.
| Category | Goods | Exemption type |
|---|
| Medicines | 36 lifesaving drugs including cancer and rare disease treatments | Full BCD exemption (Budget 2025) |
| Critical Minerals | 25 minerals not available domestically plus 12 additional minerals | Full BCD exemption (Budget 2025) |
| Agricultural Inputs | Fertilisers and select seeds | Full or partial BCD exemption |
| EV Manufacturing | 35 EV battery capital goods and 28 mobile battery capital goods | Full BCD exemption (Budget 2025) |
| Shipbuilding | Materials used for ship construction and ship breaking | BCD exemption extended for 10 years (Budget 2025) |
| Patient Assistance | Medicines supplied under free-of-cost patient assistance programmes | Full BCD exemption (Budget 2025) |
These exemptions reduce the landed cost of essential imports and support sectors critical to healthcare, agriculture, clean energy and industrial manufacturing in India.
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.
Know more about Bajaj Finance Business Loans
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