Customs duty is a tax that people pay for importing and exporting goods. The main objective is to protect the Nation’s Economy, jobs, environment, to increase revenue and protect domestic industries.
Types of Custom Duty
- Basic customs duties: Basic customs duties are the duties imposed at a specific rate on the value of the goods. The obligation is set at an ad-valorem base defined level. This duty was imposed in 1962 and has been amended from time to time and is now governed by the 1975 Customs Tariff Act. The central government is entitled to exclude from tax any products.
- Countervailing Duty (CVD): The central government imposes this duty when a country pays the subsidy to the exporters who export goods to India. This amount of obligation is the same as the tax we pay. This obligation applies in compliance with Section 9 of the Customs Tariff Act.
- Additional Customs Duty or Special CVD: A special countervailing duty is imposed on imported goods in order to equalize imports with local taxes such as service tax, VAT and other domestic taxes that are imposed from time to time. Therefore, the importation of goods produced or manufactured in India must be brought on an equal footing. This is to promote the practice of fair trade and competition in our country.
- Safeguard Duty: A safeguard duty is imposed to safeguard the interests of our local domestic industries to ensure that
no harm is caused to India’s domestic industries.
It is calculated based on the loss that our local industries have suffered.
- Anti Dumping Duty: Often, large foreign manufacturers can export goods at very low prices compared to domestic prices. These dumping may be intended to damage the domestic industry or dispose of its excess stock. This is known as’ dumping.’ In order to avoid such dumping, Central Government may impose anti-dumping duty on such articles under section 9A of the Customs Tariff Act to the extent that the goods are sold at less than their normal value. Such anti-dumping duty can be levied in accordance with the WTO agreement. Anti-dumping action can only be taken if ‘an article’ is produced by the Indian industry.
- National Calamity Contingent Duty: Section 129 of the Finance Act imposes this duty. The duty is levied on goods that are harmful to health, such as tobacco, pan masala or any items. The tax rate varies from 10% to 45% and different rates are applied for various reasons.
- Education Cess on Customs Duty: As a percentage of aggregate customs duties are levied at the prescribed rate. No cessation would be levied if goods are fully exempted from duty or charged to nil duty or are cleared without payment of duty under the prescribed procedure such as clearance under bond.
- Protective Duties: The Tariff Commission was set up under the 1951 Act of the Tariff Commission. If the Tariff Commission recommends and Central Government is satisfied that immediate action is needed to protect Indian industry interests, protective customs duties may be imposed at the rate recommended under section 6 of the Customs Tariff Act. The duty of protection shall be valid until the date specified in the notification.
Before understanding Custom Duty in India on Alibaba products let us understand how to buy products from Alibaba in India to understand click here https://penyourideas.com/8-steps-for-buying-products-from-alibaba-to-sell-in-india/
Custom Duties on Alibaba Products in India
There are a lot of questions on Custom Duties on Alibaba Products in India. Allow me to clear a number of doubts that are related to the Indian customs department. Please note that I will not go into details here, I will only mention the things which matter the most when you buy anything from Alibaba.
While talking to a supplier representative on Alibaba you should always ask him/her to mention the following things on the package
- Goods and services tax identification number (GSTIN)
- Import Export Code (IEC)
- Your FIRM name
- Invoice Value
- Product name.
WARNING: For some products BIS certificate is mandatory if you want to import them from China to India, you must ask your supplier for this certificate, If the supplier does not have that certificate for that particular product then you should never import that product as it will get stuck in the Customs Department. As for our product: “Black Crop top”. We do not need a BIS certificate. The 3rd and the 4th are two of the most crucial points that you must always take care off
Never ever mention your personal name on the parcel that you are going to receive always mention your registered firm name. By default, the suppliers on Alibaba will mention your name instead of the FIRM name So you must always ask them to mention your FIRM name and not yours.
The problem is that if you order anything by your name, the customs department will identify your goods as personal goods which are not to be used for any commercial purpose But of course, they know that no one will be buying 200 Black crop tops for personal use.
So there is a strong possibility that they may penalize you for the same, resulting in higher BCD; i.e Basic Custom duty and the worst thing is that you won’t be able to get the Input Tax Credit (ITC).
Ok, so now you understand the importance of the 3rd point but what about the 4th?
Well before I mention why the 4th point is so damn important let me tell you that how custom duty will be charged and collected from you.
Example of Custom Duty in India
Let’s say you are buying 200 pcs of “Black Medium size crop top” and each unit costs you around 0.78$ and the supplier is using FedEx with shipping charges of around 40$ for 200 pcs.
Total cost of shipment = Unit price x number of units + Shipping charges
Total cost of shipment = 0.78$ x 200 + 40$
Total cost of shipment = 196$
Note: Keep in mind that 196$ is not really the actual amount as a commission of 4-5% is also charged by Alibaba when you pay through Debit/Credit card.
But one thing is for certain that the BCD will be charged on this 196$. Now you have to know that what is the current BCD rate for Black crop top, to do that nothing is more effective than a simple Google search.
So a simple Google search will tell you the following things:
BCD on Black crop top: 10%
IGST on Black crop top: 28%
As for the BCD you only have to pay around 10% of your assessable value. But you also have to pay the extra 28% IGST on the commodity. Don’t you worry.
In reality, the only amount you will be paying is the 10% BCD and some extra cess charges (which can be ignored).
Because you will get the IGST back as INPUT TAX CREDIT!
The Indian Custom Department always calculates all these charges on its assessed value and not the actual invoice value. As almost all of the goods that come from China are undervalued.
So here is the sad truth if you mention the exact amount you will be charged more! As the assessed value is always more than the invoice value.
So here is my advice:
Ask your supplier to not include the shipping charges in the invoice value. So in our example, the invoice value will be:
156 USD and not 196 USD this way you will be charged the correct BCD and you won’t be overcharged or penalized. All of this custom work will be handled by the shipping company you choose so you don’t really have to worry about dealing with the customs departments, Just keep a track of your shipment to see if everything is going smoothly.
When your parcel reaches in the customs department the shipping company you have selected will send you an mail to upload your KYC documents on their platform.
After your parcel gets cleared out from the custom department the custom charges will be collected from you by the delivery boy, who will be delivering your shipment. Custom charges are never taken in advance they are always collected once your parcel gets delivered to you.
Calculate Custom Duty in India
To Calculate Custom Duty in India click here
If you liked reading about Custom Duties on Alibaba Products in India read about How to buy products in India https://penyourideas.com/8-steps-for-buying-products-from-alibaba-to-sell-in-india/