Custom Duty in India
Custom Duty is levied when goods are transported across borders between countries. It is the tax that governments impose on export and import of goods. The tax imposed on the import of goods is known as the import duty. Whereas, the tax imposed on the export of goods is known as the export duty. Customs Duty is beneficial for many reasons. For instance, it ensures a country’s economic stability, jobs, environment, among others. It regulates the movement of goods in and out of the country. It keeps a check on restricted items.
In the past few months, the government of India brought a major change in the tax systems of the nation. They introduced GST (Goods and Services Tax), a new tax collection system, which is a destination-based tax, which implies that the consumers are liable to pay tax when they use any goods and services.
GST has three categories –
- CGST (Central Goods and Services Tax),
- SGST (States Goods and Services Tax) and
- IGST (Integrated Goods and Services Tax).
Both CGST and SGST are applicable on the intra-state transactions whereas the IGST is applicable on the inter-state transactions. If the business is in the union territory, then UTGST will apply in place of SGST. The custom duty is now replaced by IGST, which means that instead of the custom duty, IGST tax is applicable (along with other applicable customs duties) on every import and export of goods and services. Let us understand IGST tax better.
IGST: GST for Importers
Earlier, the tax system was complex and custom duty was levied to export and import goods and services. Multiple taxes such as countervailing duty (CVD), basic custom duty, anti-dumping duty, and safeguard duty were imposed on every import of goods and services. Under GST, these multiple taxes have been replaced by just one tax known as IGST (Integrated Goods and Services Tax). Only the integrated tax and the basic customs duty will be chargeable on the import of goods.
Import of goods refers to bringing merchandise into India from anywhere outside of India as per the IGST Act 2017. All the imports will be regarded as inter-state supplies and integrated tax will be imposed on them along with other applicable customs duties.
Calculation of IGST
GST can be calculated simply by multiplying the Taxable amount by GST rate. One must know that the tax on goods is imposed as per the size, mass, and extent of the imported and exported goods. The IGST tax for imports will be received by the State where the goods or services are consumed and not by the state where they are manufactured. Mentioned below is an example of the calculation of IGST on the import of goods:
The assessable value of an imported item is INR 10000/-
Basic Customs Duty = 10%
Integrated Tax Rate = 18%
The taxes will be calculated as follows:
Assessable Value = INR 10000/-
Basic Customs Duty = INR 1000/-
The value to impose integrated tax = INR 11000/- (10000 + 1000 = 11000)
Integrated tax = 18% of INR 11000 = INR 1980/-
Sum of Taxes = INR 1000 + INR 1980 = INR 2980/-
In addition to the above IGST, cess as per the GST Cess Act, 2017 may also be applicable on the goods. In such a case, the cess will be collected on the value taken for imposing the integrated tax. According to the example given above, the cess will be calculated on INR 11000.
Importers will not be liable to pay integrated taxes at the time of moving of commodities from a custom station to warehouse.
Input Tax Credit
Input Tax Credit under GST means the credit of input tax paid on import/purchases. A registered importer can claim the credit of the IGST imposed on him as the input tax credit under the GST system. The importer can offset the same input tax credit against the tax on the outward supply of goods. However, the Basic Customs Duty (BCD) paid will not be allowed to be claimed as the input tax credit. Along with the input tax credit, the importer can also benefit from the GST Compensation Cess before transmitting it to the ones in the supply chain. It is compulsory for the importers to mention the GSTIN (GST Registration Number) in the Bill of Entry in order to get the input tax credit of GST Compensation Cess and IGST.
What is the Import of Service under GST?
Import Of Service
Import of services as per the IGST Act 2017 means the supply of any service where:
- The supplier of service is located outside India
- The recipient of service is located in India, and
- The place of supply of service is in India
As per the provisions of Section 7(1) (b) of the CGST Act, 2017, import of services with consideration whether or not in the course or furtherance of business, will be considered as supply. In simple terms, the services that are imported without consideration will not be considered as a supply. However, the business test is not obligatory for the imported services to be deemed as a supply.
Import of Services by Related Entities
Import of services by a taxable person between related entities in the course or furtherance of business will be treated as supply, even if it is made without any consideration. Thus, import of some services by an Indian branch or foreign subsidiary from their parent company, in the course or furtherance of business, even without consideration, will be a supply and shall be subject to GST.
OIDAR services or Online Information and Database Access or Retrieval Services attract GST. Persons providing OIDAR services should mandatorily acquire GST registration. Also, a person who is importing services will be liable to pay tax on a reverse charge basis. However, in respect of the import of online information and database access or retrieval services (OIDAR) by unregistered, non-taxable recipients, the supplier located outside India will be responsible for the payment of taxes. The supplier will either have to take registration or assign a person in India for paying the taxes.
Supply to SEZ
Supply of goods or services or both to a Special Economic Zone Developer or an SEZ unit shall apply as inter-state supply and will be subject to levy of IGST.
GST for Exporters
Before GST was introduced, duties were imposed even on the export of goods and services. However, as per the new tax system, the export of goods and services from India to any other place outside the country are to be treated as ‘zero-rated supplies’. This means that no GST is applicable for the exporters. The registered taxable individuals that are exporting goods or services to places outside the country can claim refund.
According to the tax offsetting rules under GST, IGST credit needs to be used first to offset IGST tax liability. Whatever IGST credit is left can be used against CGST liability, then against SGST liability (in that order).
Under GST, exports and supplies to SEZ are zero rated as per Section 16 of the IGST Act, 2017. By zero rating, it is meant that the entire supply chain of a particular supply is tax free, i.e., there is no burden of tax either on the input side or output side.