Duties and taxes play an important role when transporting goods from foreign countries. Since these taxes are levied directly or indirectly on the importer/exporters’ goods, they can affect the overall profit margin.
Indian taxation policies, in particular, are known to be highly evasive. From political affiliations o domestic markets, here are the factors affecting duties and tariffs in India.
Duties and Tariffs in India
According to World Trade Organization reports India has the highest rate of most favoured nations’ tariffs for a major economy. Compared to countries like Canada and the US, import/export from/to other nations encounter major barriers. India’s applied favoured nation tariff rate is 13.8%, an uncommonly high bar.
The country also has significantly high customs duties rates, exceeding 20% for some products like pharmaceuticals. The government has major flexibility in altering these tariff and duty rates compared to other nations, as evidenced by recent events. To counter the US’s move to adjust the import of steel and aluminium goods, the Indian government announced retaliatory duties on 29 US goods during the 2021-22 Annual Budget meeting.
Tariffs and Duties in India fall under the purview of the GOI Foreign Trade Act and the country’s national export/import policies. All incoming/outgoing products must abide by these rules and regulations - registration at the proper stations is also mandatory. The Director General of Foreign Trade is the highest office governing international trade.
Important Trade Agreements Governing Duties and Tariffs in India
In terms of imports, the US ranks third, with China and UAE leading the first and second positions, respectively. Nations like Saudi Arabia, Iraq, Switzerland, Hong Kong, Singapore, Indonesia, and South Korea round off the top 10 spots.
In addition, India’s tariffs and duties are also widely influenced by its political relationship with other countries. Trade agreements play a major role in defining these relations. The most relevant among current import/export agreements are
- Asia Pacific Trade Agreement (APTA) was signed between China, India, Sri Lanka, the Republic of Korea, and the Lao People’s Democratic. According to the policies of this agreement, the member states get tariff concessions of 50% average MOP on 50% of tariff lines.
- India-Africa Trade Agreement, signed with 19 African nations
- Comprehensive Economic Cooperation Agreement Between India and the Association of Southeast Asian Nations (ASEAN)
- Comprehensive Economic Partnership Agreement (CEPA) Between the Government of the Republic of India and the Government of the United Arab Emirates.
- India-Australia Economic Cooperation and Trade Agreement (INDAUS ECTA) Between the Government of the Republic of India and the Government of Australia
Laws Governing Tariffs and Duties in India
To calculate the correct tariff rates, cargo leaving/entering India must be classified first.
All import and export goods in India are classified according to the policies of the Customs Tariff Act of 1975 and the Customs Act of 1962. Cohesively called the Indian Customs Tariff or the Tariff Schedule, these laws base the cargo classification on two important nomenclature.
According to the acts, the classifications of goods leaving/entering India are based on the HS. Also called the Harmonized Commodity Description and Coding System, HS is a major component of international trade - they are also used domestically by excise bodies to tax Indian-made goods. Countries like Canada also use these tariff definitions in calculating their rates and duties.
Components of this system include the common 6-digit code system. Indian customs use these codes, while other bodies like the Directorate General of Foreign Trade and the Directorate General of Commercial Intelligence and Statics use 10 or 8-digit codes.
Points to Remember when Importing/Exporting Goods in India
Components of the Indian Customs Duty
India’s taxation policy is complex, elaborate, and multi-faceted. Their Customs Duty is a prime example of this - rather than a single-layer taxation policy, several duties and tariffs are compiled together when imposing this duty. For example,
- Social Welfare Surcharge - Implemented in 2018, this tax is levied at 10% of the value of the goods.
- Anti Dumping Duty - Tax levied to protect domestic industry, primarily on US-made goods.
- Customs Handling Fee - The rate is 1% in addition to the applied customs duty.
- Basic Customs Duty (BCD) - This tax is based on factors like the unit of cargo, the value of goods, or a combination of the two.
- Integrated Goods and Services Tax (IGST) - Levied based on the value of the goods, the social welfare surcharge, and the customs duty chargeable.
- GST Compensation Cess - Applied atop regular GST on certain goods
- Safeguard Duty: Levied to protect local industries, this tax is variable, based on the current market for the goods/services being imported
Note: India’s tariffs and duties are prone to change. These regulations change form regularly, typically at the annual budget meeting held in February of every year.
Importing Indian Goods to the US
Companies and importers must furnish their HS codes when importing/exporting goods to/from India. These digits reveal the tariff rates for specific products - however, these codes vary from product to product depending on their make, materials, design, use, and more. Only once an importer has found their HS code can they determine their goods' corresponding tariff rate and duty.
Also called the Schedule B number, companies can unearth these details by visiting the relevant websites. Here, they need to provide detailed info about the item being imported to produce the HS code. For example, for importing steel pipes into the US, the importer must offer the following details under the US Census Bureau - Foreign Trade Schedule B (2022), Chapter 73.
- Base Material Composition
So for a seamless stainless steel line pipe, the chart would look something like
- Base Material Composition - Metal
- Rigidity - Rigid
- Composition - Steel
- Seam - Seamless
- Item - Line Pipe
- Function - Oil Piping or gas Piping
- Design/Composition - Stainless Steel
Based on this data, the Schedule B number for this product on the US government site is 7304.11.0000. Exporters can now use this code to verify the tariffs and duties on the relevant Indian government website. These cades make international trade smooth and uniform for importers and exporters.