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When a product is imported into India, it does not just attract a single import tax. What gets charged is actually a stack of several distinct duties and taxes - each calculated on a different base and governed by different laws. Understanding this layered structure is essential for accurate landed cost calculations, pricing strategy, and identifying legal duty reduction opportunities.
- Basic Customs Duty (BCD) - Primary import duty
- Social Welfare Surcharge (SWS) - 10% of BCD
- IGST (Integrated GST) - Applied on imports instead of domestic GST
- Compensation Cess - On demerit goods (tobacco, luxury cars, aerated drinks)
- Anti-Dumping Duty or Safeguard Duty - On specific products from specific countries
How Customs Duty Is Calculated - A Worked Example
Importing a machine worth USD 10,000 CIF at exchange rate of Rs 84 per USD with BCD of 10%:
| Component | Calculation | Amount |
|---|---|---|
| Assessable Value (CIF) | USD 10,000 x 84 | Rs 8,40,000 |
| Basic Customs Duty (BCD) at 10% | 10% of Rs 8,40,000 | Rs 84,000 |
| Social Welfare Surcharge at 10% of BCD | 10% of Rs 84,000 | Rs 8,400 |
| IGST Base (AV + BCD + SWS) | Rs 8,40,000 + Rs 84,000 + Rs 8,400 | Rs 9,32,400 |
| IGST at 18% | 18% of Rs 9,32,400 | Rs 1,67,832 |
| Total Landed Cost | Rs 8,40,000 + Rs 2,60,232 | Rs 11,00,232 |
Note: IGST paid on import is claimable as Input Tax Credit (ITC) by registered GST businesses. BCD and SWS are non-refundable permanent duties.
Legal Ways to Reduce Customs Duty
India has FTAs with ASEAN, Japan, South Korea, UAE, and Australia. Under FTA, BCD on eligible goods can be reduced to 0-5%. You need a valid Certificate of Origin from the exporting country to avail FTA benefit.
If you import raw materials to manufacture export products, Advance Authorisation allows duty-free import. The exported goods must match the Standard Input Output Norms (SION) of DGFT.
Import capital goods (machinery) at zero or 5% BCD by committing to export obligations. Ideal for manufacturers who use machinery to produce export goods.
Many importers overpay duty because they use incorrect or generic HS codes. The correct HS code can have a significantly lower duty rate. A customs consultant can review your product classification.
For any GST-registered business, IGST paid on imports can be claimed as Input Tax Credit (ITC) and used to offset GST output liability. This means IGST on imports is effectively revenue-neutral for registered businesses. The real cost of importing is only the BCD and SWS, which are permanent non-refundable duties.
Understanding customs duty structure is fundamental to import business profitability. The difference between paying full BCD and using an FTA or Advance Authorisation can easily save 10-20% on landed costs. Legal Chanakya provides customs advisory services including HS code classification, FTA benefit utilisation, and customs duty optimisation.
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