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
Customs duty in India is charged mainly on imported goods, while export duty applies only to a limited list of items. Some essential goods such as fertilisers, food grains, and lifesaving medicines are exempt from import duty. The major types of customs duties applicable in India are listed below.
Type of Customs Duty
|
Rate
|
Where It Applies
|
Basic Customs Duty (BCD)
|
0 to 100% (based on HS code and country of origin)
|
Charged on most imported goods. Actual duty depends on the product type, source country, and material composition. Several items like lifesaving drugs are exempt.
|
Special Additional Duty (SAD)
|
4%
|
Applied on imported goods that are equivalent to locally produced items subject to VAT or sales tax. Calculated on the total assessable value.
|
Countervailing Duty (CVD)
|
0% to 12% (depends on the product)
|
Levied on goods that receive subsidies or tax benefits in their manufacturing country to ensure a level playing field for domestic producers.
|
Social Welfare Surcharge (SWS)
|
10%
|
Introduced in 2018 to fund social welfare schemes. Replaced earlier education cesses. Applied on the BCD amount.
|
Anti-Dumping Duty
|
As per government notification
|
Imposed to prevent dumping of goods at unfairly low prices that harm domestic industries.
|
Compensation Cess
|
Depends on product category
|
Levied on items such as tobacco, coal, and certain automobiles to compensate states for revenue loss after the rollout of GST.
|
Safeguard Duty
|
As per government notification
|
Applied on imports that may cause serious injury to local manufacturers due to a sudden surge in imports.
|
Integrated GST (IGST)
|
5%, 12%, 18%, or 28%
|
Applied on all imported goods under the GST regime and calculated on the value inclusive of customs duty.
|
Customs Handling Fee
|
1%
|
Charged additionally for customs processing and handling.
|
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.
What are the factors affecting the calculation of customs duty?
- Nature of goods: The type of goods being imported or exported significantly influences the duty rates, with different rates applied to different categories of products.
- Value of goods: Customs duty is often calculated as a percentage of the goods' value, determined based on the transaction value, market value, or a customs-assessed value.
- Country of origin: The country where the goods are manufactured or from which they are exported can affect duty rates, especially under trade agreements or preferential tariff schemes.
- Trade agreements: Bilateral or multilateral trade agreements between countries can lead to reduced or exempted customs duties on certain goods.
- Purpose of import/export: The intended use of the goods, whether for personal use, commercial purposes, or industrial use, can influence the applicable duty rates.
How to calculate customs duty in India?
The calculation of customs duty on imported goods involves multiple steps:
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 several 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 appropriate percentage of BCD to the assessable value. This duty is levied on nearly all imported goods and can be found in the official customs tariff schedule.
Step 4: Calculate the Additional Customs Duty (Countervailing Duty)
Next, calculate the additional customs duty, often referred to as the countervailing duty (CVD). This is imposed to neutralise any subsidies or tax benefits the product may have received in its country of manufacture.
Step 5: Calculate Education Cess and other cesses
Calculate the Education Cess (2%) and Secondary and Higher Education Cess (1%) on the total customs duty payable. At this point, also account for any additional applicable duties such as anti-dumping duty, safeguard duty, or special additional duty.
Step 6: Consider exemptions and concessions
Finally, assess whether any exemptions or concessions apply to the imported goods. Depending on the nature and purpose of the import, the importer may be eligible for certain reductions or waivers in customs duty. These must be factored in before the final payment is made.
Latest custom duty rates in India
Goods Category
|
Customs Duty Rate
|
Electronics
|
20%
|
Automobiles
|
25%
|
Textiles
|
15%
|
Agricultural products
|
10%
|
Pharmaceuticals
|
5%
|
How to pay customs duty online?
You can pay customs duty online by following these simple steps:
Step 1: Visit the ICEGATE e-payment portal.
Step 2: Enter your Importer/Exporter Code (IEC) or ICEGATE login details.
Step 3: Select the e-Payment option.
Step 4: View all pending challans displayed under your profile.
Step 5: Choose the challan you wish to pay and select your preferred bank or payment mode.
Step 6: You will be redirected to your bank’s payment gateway.
Step 7: Complete the payment.
Step 8: After payment, you will return to the ICEGATE portal - click ‘Print’ to download or save the payment receipt.
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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