India - Import TariffsIndia - Import Tariffs
USTR source indicates that though government of India has pursued ongoing economic reform efforts, U.S. exporters continue to encounter significant tariff and nontariff barriers that impede imports of U.S. products into India. The World Trade Organization estimates that India’s applied most favored nation import tariffs are 13.8 percent and highest of any major economy.
The GOI Foreign Trade (Development & Regulation) Act and India’s Export Import policy govern the import tariffs. The office of the Director General of Foreign Trade mandates registration for all importers before engaging in import and export activities.
Tariff Rates
The structure of India’s customs tariff and fees system is complex and characterized by a lack of transparency in determining net effective rates of customs tariffs, excise duties, and other duties and charges. The tariff structure of general application is composed of a basic customs duty, an “additional duty,” a “special additional duty,” and an education assessment (“cess”).
In 2018, Indian Government in cooperation with the Federation of Indian Exporters (FIEO) debuted its India Trade Portal ( http://indiantradeportal.in/ ) and publishes applied tariffs and other customs duty rates applicable to imports. The India Trade Portal provides information on the latest tariff and duty rates by Harmonized System codes.
India also maintains the web-based Indian Customs Electronic Commerce/Electronic Data Interchange Gateway, known as ICEGATE (http://icegate.gov.in). It provides options for calculating duty rates, electronic filing of certain import declarations and shipping bills (export goods declarations), electronic payment, and online verification of import and export licenses. In addition to being announced with the annual budget, India’s customs rates are modified on an ad hoc and arbitrary basis through notifications in the Gazette of India and contain numerous exemptions that vary according to the product, user, or specific export promotion program, rendering India’s customs system complex to administer and open to administrative discretion.
USTR report further states that the government of India is increasing the use of electronic forms. India is also building a single window for customs documents and as a result of this process, India now only requires three documents for importers and exporters for approvals from the 13 separate government agencies that are currently incorporated into the single window to reduce the customs processing time.
After ratifying the WTO Agreement on Trade Facilitation (TFA) in April 2016, India established the National Committee on Trade Facilitation (NTFC) in August 2016. In July 2017, the NTFC debuted a roadmap for trade facilitation for India, and it will facilitate domestic co-ordination and implementation of TFA provisions. The United States and India held joint workshops covering best practices in trade facilitation in October 2016 and in September 2018. The workshops included both Indian and U.S. industry representatives and focused on implementing the TFA and customs reforms expeditiously to facilitate trade
India’s tariff regime is also characterized by pronounced disparities between WTO bound rates and the most favored nation (MFN) applied rates charged at the border. According to the latest WTO data, India’s average bound tariff rate is 48.5 percent, while its simple MFN average applied tariff is 13.8 percent (per the WTO latest 2017 data available). Given this large disparity between bound and applied rates, U.S. exporters face tremendous uncertainty because India has considerable flexibility to change tariff rates at any time. India’s average WTO-bound tariff for agricultural products is 113.5 percent. Applied rates are also relatively high and on a trade-weighted basis, the average agricultural tariff is 32.8percent. In addition, while India has bound all agricultural tariff lines in the WTO, over 30 percent of India’s non-agricultural tariffs remain unbound (i.e., there is no WTO ceiling on the rate).
Despite its goal of moving toward the Association of Southeast Asian Nations (ASEAN) tariff rates (approximately 5 percent on average), India has not systematically reduced the basic customs duty in the past six years.
India maintains high tariffs on a number of goods, and operates a number of complicated duty drawback, duty exemption, and duty remission schemes for imports. In addition, India maintains high basic customs duties, in some cases exceeding 20 percent, on drug formulations, including life-saving drugs and finished medicines listed on the World Health Organization’s list of essential medicines.
Many of India’s bound tariff rates on agricultural products are among the highest in the world, ranging from 100 percent to 300 percent. While many Indian applied tariff rates are lower (averaging 32.7 percent on agricultural goods), they still present a significant barrier to trade in agricultural goods and processed foods. The large gap between bound and applied tariff rates in the agriculture sector allows India to use tariff policy to make frequent adjustments to the level of protection provided to domestic producers, creating uncertainty for importers and exporters. For example, from November 2017 through March 2018, India raised import duties from zero percent to 60 percent on chickpeas, 50 percent on peas, 40 percent on large chickpeas, and 30 percent on lentils, severely impacting U.S. pulse exports to India.
The government of India took advantage of this tariff flexibility in the 2018 budget when it increased tariffs on 52 separate line items, including key U.S. exports in the agricultural, information and communications technology, and automobile parts sectors, with no warning or public consultation process. The increased tariffs also included agricultural products such as certain fruit juices (from 30 percent to 35 percent), certain edible vegetable oils (from 20 percent to 35 percent), and several other agricultural and non-agricultural items.
India further raised duties on several information and communications technology products, including cell phones, from 15 percent to 20 percent. Prior to the tariff increases, these products were imported duty- free. Duties on automotive components such as engine and transmission parts, brakes, suspensions, gear boxes, and airbags increased to 15 percent from 7.5 percent in the case of some products and from 10 percent in the case of others. In addition, a new 10 percent tariff on imports, labeled the “social welfare surcharge,” was instituted without public notice or consultation. The “social welfare surcharge” is applied to the aggregate of duties, taxes and cesses assessed on imports.
On June 20, 2018, India announced an intention to adopt tariffs ranging from 10 to 50 percent on various products imported from the United States, in retaliation against the President’s decision to adjust U.S. imports of steel and aluminum articles under Section 232 of the Trade Expansion Act of 1962, as amended. The new tariffs would apply to a range of agricultural and manufactured products, including products of steel. On February 26, 2019, India announced that it would further delay the implementation of these tariffs.
The United States has urged India to work to address the common problem of excess capacity in the global steel and aluminum sectors, rather than engage in unjustified retaliation designed to punish American workers and companies. The United States will take all necessary action to protect U.S. interests in the face of such retaliation.
In September 2018, India increased import duties again on 19 items in an attempt to narrow a widening current account deficit and relieve downward pressure on the rupee against other world currencies. Tariffs were increased on jet fuel and 18 other items deemed non-essential, including air-conditioners, refrigerators, and small washing machines as well as products such as footwear, tableware, suitcases, gold and silver jewelry, and semi-processed diamonds.
In July 2017, India implemented the Good and Services Tax (GST) system to unify Indian states into a single market and improve the ease of doing business. The GST is designed to simplify the movement of goods within India, but it also applies to imports. Before the GST implementation, imports could be subject to an “additional duty,” a “special additional duty,” an education cess (tax), state level value added or sales taxes, the Central Sales Tax, and/or various other local taxes and charges. The new GST system subsumed a number of these charges, including the “additional duty” and the “special additional duty,” that were previously levied on imports into the single GST. The tariff (or “basic customs duty”) continues to be assessed on imports separately and has not been incorporated into the GST.
The new GST is made up of three main taxes: Central GST (CGST) is a fee collected by the central government for sales in all states; State GST (SGST) is a fee collected by each state for sales within a state; and Integrated GST (IGST) is a fee collected by the central government for sales between states. Under the new system, goods and services are taxed under four basic rates – five percent, 12 percent, 18 percent and 28 percent. Some items, like vegetables and milk, have been exempted from the GST. The price of most goods and services increased in the immediate aftermath of the tax, and as expected, economic growth slowed for several months following GST implementation.
Classification
Government of India’s, Central Board of Indirect Taxes and Customs (CBIC or the Board) functioning under the Department of Revenue, Ministry of Finance, deals with the formulation of policy concerning levy and collection of Customs. The classification of the imports and exports of the goods are governed by the Customs Act of 1962 and Customs Tariff act of 1975. The act contains two schedules, and specifies the nomenclature that is based on the Harmonized Commodity Description and Coding System as “HS” and also contains description of goods chargeable to export duty. It is also called as the “Tariff Schedule” or the “Indian Customs Tariff”.
The Indian customs classification on tariff items follows the Harmonized Commodity Description and Coding System (Harmonized System or HS). Customs uses six-digit HS codes, the Directorate-General of Commercial Intelligence and Statistics (DGCI&S) uses eight-digit codes for statistical purposes, and the Directorate General of Foreign Trade (DGFT) has broadly extended the eight-digit DGCI&S codes up to 10 digits.
It is also worth noting that the excise authorities use HS codes for classifying goods to levy excise duty (manufacturing taxes) on goods produced in India.
How Customs Duty is calculated
All goods imported into India are subject to duty. There are several factors that go into calculating customs duty, including:
Basic Customs Duty (BCD)
This duty is levied either as 1) a specific rate based on the unit of the item (weight, number, etc.), or more commonly, 2) ad-valorem, based on the assessable value of the item. In some cases, a combination of the two is used.
Social Welfare Surcharge
Social Welfare Surcharge introduced in the Budget 2018 is levied in place of education Cess. The rate is 10% of the value of goods.
Integrated Goods and Services Tax (IGST)
GST is applicable on all imports into India in the form of levy of IGST. IGST is levied on the value of imported goods + any customs duty chargeable on the goods.
Value of imported Goods + Basic Customs Duty + Social Welfare Surcharge = Value on which IGST is calculated
Value x IGST Rate = IGST Payable
GST Compensation Cess
GST Compensation Cess is a levy which will be applicable in addition to the regular GST taxes. GST Cess is levied on supply of certain notified goods – mostly belonging to the luxury and demerit category.
Anti-dumping Duty
This is levied on specified goods imported from specified countries, including the United States, to protect indigenous industry from injury
Safeguard Duty
The Indian government may by notification impose a safeguard duty on articles after concluding that increased imported quantities and under current conditions will cause or threaten to cause serious injury to domestic industry.
Customs Handling Fee
The Indian government assesses a 1% customs handling fee on all imports in addition to the applied customs duty.
Total Duty
Therefore, for most goods, total duty payable = BCD + Customs Handling Fee.
Tariff rates, excise duties, regulatory duties, and countervailing duties are revised in each annual budget in February, and are published in various sources, including BIGs Easy Reference Customs Tariff edition. A copy of this book is kept at the USA Trade Information Center in Washington DC and more specific information from this guide is available to U.S. Companies by calling 800-USA-TRADE.
While the Indian government publishes customs tariffs rates there is no single official publication that has all information on tariffs and tax rates on imports.
Duty exemption plan
The Duty Exemption Plan enables duty free import of inputs required for export production. An advance license is issued under the duty exemption plan.
As per the Foreign Trade Policy (2015-20) (as on 31 March 2019), the duty exemption/ Remission schemes enable the duty-free import of inputs for export production, including replenishment of inputs or duty remission. The schemes consist of:
(a) Duty Exemption Schemes, that consists of: Advance Authorization (AA) (which will include Advance Authorization for Annual Requirement) and Duty-Free Import Authorization (DFIA).
(b)Duty Remission Scheme, that consist Duty Drawback (DBK) Scheme, administered by Department of Revenue
(c)Scheme for Rebate on State and Central Taxes and Levies (RoSCTL), as notified by the Ministry of Textiles on 07.03.2019, and implemented by the DGFT.