Duties on Imports: A Guide to Custom and Import Taxes in India

This article provides an overview of Custom Duty and Import Taxes in India. It explains the purpose of Customs Duty and how it is applied to imports into India. It also provides an overview of the recently introduced IGST tax, which is applied to all imports and exports of goods and services. Read On To Know More.

Understanding Custom Duty in India

Custom Duty is a tax imposed on the movement of goods across international borders. When imported into a country, they are subject to an import duty, while goods exported from a country incur an export duty. This tax plays a vital role in various aspects such as economic stability, job creation, environmental regulations, and more.

The primary purpose of Custom Duty is to control the flow of goods in and out of a country. It serves as a means of regulating restricted items and ensuring that the country's economic interests are safeguarded.

In recent months, India has introduced a significant change in its tax system by implementing Goods and Services Tax (GST). GST is a destination-based tax system, meaning that consumers bear the tax burden when they utilize goods and services. It comprises three key components:

1. CGST (Central Goods and Services Tax): Applicable to intra-state transactions.

2. SGST (States Goods and Services Tax): Also for intra-state transactions.

3. IGST (Integrated Goods and Services Tax): About inter-state transactions.

In cases involving union territories, UTGST replaces SGST. Importantly, custom duty has been replaced by IGST. This means that instead of customs duty, IGST tax (alongside other relevant customs duties) applies to all imports and exports of goods and services. This shift reflects the evolving tax landscape in India, bringing greater simplicity and uniformity to the taxation of goods and services.

IGST Simplifies Import Taxes in India

In the past, India's tax system for importing and exporting goods and services was quite complicated. It involved multiple taxes like countervailing duty (CVD), basic custom duty, anti-dumping duty, and safeguard duty, all applying to various aspects of the process. 

With the introduction of GST (Goods and Services Tax), this intricate tax structure has been streamlined. Instead of dealing with multiple taxes, there is now one single tax called IGST, which stands for Integrated Goods and Services Tax. 

For importers, this means that only the integrated tax, along with the basic customs duty, needs to be considered when bringing goods into India from abroad. This change simplifies the tax system significantly, making it more efficient and easier to understand. 

Any imports into India are now classified as inter-state supplies, subject to the integrated tax, and any other applicable customs duties that may apply. This uniform approach provides clarity and transparency for importers, ensuring they understand the taxes involved in their transactions.

How To Calculate IGST For Imports?

Calculating IGST (Integrated Goods and Services Tax) for imports is relatively straightforward. It involves multiplying the taxable amount by the GST rate. It's important to note that the tax on goods is determined based on their size, mass, and value.

Below is an example to understand the calculation process:

Example:

1. The assessable value of an imported item is Rs. 20,000.

2. Basic Customs Duty is 10%.

3. The Integrated Tax Rate is 18%.

- Assessable Value = Rs. 20,000

- Basic Customs Duty = 10% of Rs. 20,000, which equals Rs. 2,000.

- Value for imposing integrated tax = Rs. 20,000 + Rs. 2,000, totaling INR 22,000.

- Integrated Tax = 18% of Rs. 11,000, which is Rs. 3960.

The sum of taxes, in this case, is Rs. 2,000 (Basic Customs Duty) + Rs. 3,960 (Integrated Tax), equaling Rs. 5,960.

It's worth mentioning that in some cases, there may be additional cess as per the GST Cess Act, 2017, which is also applicable to the goods. If this applies, the cess is calculated based on the value used for imposing the integrated tax. In the example provided, the cess would be calculated on the INR 22,000 value.

Importers do not need to pay integrated taxes when moving goods from a customs station to a warehouse.

Understanding Input Tax Credit (ITC) in GST

Input Tax Credit (ITC) in the GST system refers to the credit an importer can claim for the input tax paid on imports or purchases. This credit primarily applies to the Integrated Goods and Services Tax (IGST) imposed on the importer. 

1. Claiming ITC: A registered importer can claim the ITC for the IGST they have paid. This means they can offset the tax they've paid on imports against the tax they owe on the outward supply of goods.

2. Exclusion of Basic Customs Duty: It's important to note that the Basic Customs Duty (BCD) paid will not be allowed as part of the ITC. In other words, BCD is not eligible for this credit.

3. GST Compensation Cess: Importers can also benefit from the GST Compensation Cess before passing it on to others in the supply chain.

4. GSTIN Requirement: To avail of the ITC for GST Compensation Cess and IGST, importers must include their GST Registration Number (GSTIN) in the Bill of Entry. This ensures they can claim the credit effectively.

In simple terms, ITC allows importers to reduce the tax they owe on their outward supplies by using the credit they've accumulated from the taxes paid on imports, except for the Basic Customs Duty. It's a mechanism that promotes fair taxation and helps businesses in the supply chain.

Understanding the Import of Services in GST

Import of services in GST refers to the supply of services when certain conditions are met:

1. Supplier Location: The service provider is located outside India.

2. Recipient Location: The recipient of the service is in India.

3. Place of Supply: The place where the service is supplied is within India.

Important Key Points To Remember:

- If services are imported with consideration, whether or not in the course of business, it's considered a supply, according to Section 7(1)(b) of the CGST Act, 2017. Importing services without any consideration is not considered a supply. However, the consideration or business context is not always necessary for imported services to be considered a supply.

- Importing services between related entities in the course of business is treated as a supply, even if it's done without any consideration. For example, if an Indian branch or foreign subsidiary imports services from their parent company, even without payment, it's considered a supply subject to GST.

- Online Information and Database Access or Retrieval Services (OIDAR services) are subject to GST. Providers of OIDAR services must obtain GST registration. When importing OIDAR services, the recipient is liable to pay tax under the reverse charge mechanism. However, if unregistered, non-taxable recipients import these services, the responsibility for tax payment falls on the foreign supplier, who must either register in India or appoint a representative for tax payment.

- When supplying goods or services to a Special Economic Zone (SEZ) Developer or SEZ unit, it's considered an inter-state supply and is subject to IGST.

In simple terms, import of services in GST deals with services received from abroad, where the supplier is located outside India, and these services are consumed within the country. It includes situations involving consideration, related entities, OIDAR services, and supply to SEZs.

Also Read: ITAT Rules Orders Issued Without DIN as Invalid and Non-Existent

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