Custom Duty and Import Duty in India

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 –

  1. CGST (Central Goods and Services Tax),
  2. SGST (States Goods and Services Tax) and
  3. 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.

New GST Registration
Need help with your GST Registration? We can help you out.
[Rated 4.8 stars by customers like you]
New GST Registration
Need help with your GST Registration? We can help you out.
[Rated 4.8 stars by customers like you]

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 Under GST, these multiple taxes have been replaced by just one tax known as IGST (Integrated Goods and Services Tax).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:

For example,

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.

Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore
Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore

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:

  1. The supplier of service is located outside India
  2. The recipient of service is located in India, and
  3. 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 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

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 Number Search: Verify GST Number or GSTIN online
Enter GST number or GSTIN (GST Identification Number) and verify GST details online. GST Number or GSTIN is a unqiue 15 digit number allotted after GST Registration.
Explore
GST Number Search: Verify GST Number or GSTIN online
Enter GST number or GSTIN (GST Identification Number) and verify GST details online. GST Number or GSTIN is a unqiue 15 digit number allotted after GST Registration.
Explore

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.

FAQ

How IGST credit can be used?

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).

What is zero rated supply under GST?

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.

GST Challan Payment : Process to pay GST online

The online GST payment system involves filing GST return, creating challan and finally payment of GST by the taxpayer. A taxpayer under GST can make payment of tax, interest, penalty, fees and other payments by creating a challan on the GST Portal i.e. gst.gov.in

Steps to make online payment of GST challan:

  1. Go to GST Portal

    Click on Services > Payments > Create Challan

  2. Enter GSTIN or other applicable ID, enter captcha code and click on Proceed

    Note: Other applicable ID
    i. UIN i.e. Unique Identification Number – in case of UN bodies, embassies, government offices or other notified persons
    ii. TRPID i.e. Tax Return Preparer Identification Number – in case of Tax Return Preparers
    iii. TMPID i.e. Temporary Identification Number – in case of an unregistered dealer having a temporary ID 

  3. The Challan view is displayed

    Enter the amount of tax, interest, penalty, fees and other payments under the respective heads i.e. CGST, IGST, SGST and Cess. Also, we can view the total amount at the bottom of the challan.

  4. Select the Payment Mode

    Select from E-Payment, Over the Counter or NEFT/RTGS

A. E-Payment

  • Select E-Payment and then click on Generate Challan
  • OTP Authentication – Enter the OTP sent on the registered mobile number and then click on Proceed
  • The challan is ready. Click on Download to save the challan
  • Select Net Banking, select the name of your bank and then click on Make Payment. It will redirect you to the payment page of the bank where you can complete the payment process.
  • On successful payment, it will redirect you to the GST portal. Further, the payment summary with the transaction status and payment receipt can be seen.

B. Over the Counter (OTC)

  • Select the name of your bank, select the type of instrument i.e. cash, cheque or demand draft and then click on Generate Challan
  • OTP Authentication – Enter the OTP sent on the registered mobile number and then click on Proceed
  • The challan is now ready. To save the challan, click on Download
  • Make the payment using cash, cheque or demand draft before the challan expires
  • Once the bank confirms, the payment status would be updated on the GST Portal

C. NEFT / RTGS

  • Select the name of bank then click on Generate Challan
  • OTP Authentication – Enter the OTP sent on the registered mobile number and click on Proceed
  • The challan is now ready. Click on Download to save the challan
  • Make the payment through cheque or account debit facility
  • Once the bank processes the payment, you will receive a UTR number on your registered mobile and email
  • Go to challan history, click on CPIN and enter the UTR to link it with the RTGS
  • Once the bank confirms, the payment status would be updated on the GST Portal. Also, the E-Cash Ledger is updated with the payment amount

FAQs

What is ARN number in GST?

Application Reference Number (ARN) is an acknowledgement issued by GSTN system portal to the taxpayers who have successfully submitted their application after completing the full process.

Can I make a GST payment through a physical challan?

No, physicals challans will not be accepted for the payment of GST. Payments can be made only through the challans generated in gst.gov.in

Can GST Challan be cancelled?

Yes, you can cancel a OTC Challan which is not paid from the Challan History. Navigate to Services > Payments > Challan History to cancel such OTC Challan.

Can excess GST paid by mistake be refunded?

Yes. Excess GST paid by mistake will be refunded. Log in to the GST website, go to services and submit your refund application.

What is GST Compensation Cess?

GST Compensation Cess is the cess levied on certain notified goods. It is charged in addition to IGST, CGST and SGST. Further, the provisions for charging GST Cess are listed in the Goods and Services Tax (Compensation to States) Act, 2017.

The purpose of levying GST Cess is to compensate the states that incurred a loss in revenues due to the implementation of the GST Act. Since GST is a consumption-based tax, the state in which the goods or services are consumed would be eligible for the revenue from GST.

Thus, the manufacturing states i.e. Gujarat, Haryana, Karnataka, Maharashtra and Tamil Nadu would lose their revenue. As a result, GST Compensation Cess was introduced to distribute its revenue amongst the manufacturing states.

Features of GST Compensation Cess

  • Applicability – 5 years
    It would be levied for a period of five years (up to 01/07/2022) from the date of implementation of GST i.e. 01/07/2017. The GST Council can extend this time period
  • Notified Goods & Services
    Taxable persons selling notified goods are liable to collect and pay GST Cess. You can view the list of notified goods and services here
  • Tax Calculation
    Calculate GST Cess on the transaction value of goods or services. Cess is levied in addition to CGST + SGST/UTGST in case of intra-state sales and IGST in case of inter-state sales
  • Not charged on Exports
    Taxpayer cannot charge Cess on goods exported out of India. The exporter can claim a refund of the input tax credit of cess paid on purchases
  • Not charged to Composite Dealers
    Taxpayer cannot charge Cess to dealers registered under the Composition Scheme
  • Input Tax Credit
    Taxpayer can use Input Tax Credit of Cess for payment of Cess liability on sales. You cannot use Input Tax Credit of Cess for payment of output CGST, SGST or IGST

FAQs

Can I claim credit of GST Compensation Cess paid on purchases?

Yes, taxpayer can claim Input Tax Credit of the GST Compensation Cess paid on inward supplies or purchases. However, the taxpayer can adjust Input Tax Credit of Cess against Output tax liability of Cess only. Taxpayer cannot adjust ITC of Cess with output tax liability of IGST, CGST, SGST or UTGST.

Which goods will attract GST Compensation Cess?

* Sin Goods such as Cigarattes and Pan Masala
* Other Goods such as Aerated Drinks, Coal, motor vehicles with specified engine capacity
You can refer the entire list on cbic.gov.in

What is IGST, CGST & SGST / UTGST?

GST stands for Goods and Services Tax. It is charged on the sale of goods and services. Under the GST regime, there are three different types of taxes introduced – IGST, CGST, SGST / UTGST. In addition to this, GST Compensation Cess is charged on specified goods.

1. IGST – Integrated GST

  • IGST is charged in case of Inter-state supply i.e. when there is a sale of goods or services outside the state.
  • It is collected by the Central Government. However, the revenue generated from IGST is shared by both the Central Government and State Government.
  • The rate of IGST is equal to CGST+SGST. For example: If the GST Rate of a product is 18%, IGST would be charged at 18% of the sales value.

2. CGST – Central GST

  • CGST is charged in case of Intra-state supply i.e. when there is a sale of goods or services within the state.
  • Revenue generated from CGST goes to the Central Government.
  • The rate of CGST is equal to SGST. For example: If the GST Rate of a product is 18%, CGST would be charged at 9% of the sales value and SGST would be charged at 9% of the sales value.

3. SGST – State GST or UTGST – Union Territory GST

  • SGST or UTGST is applicable in case of Intra-state supply i.e. when there is a sale of goods or services within the state/ union territory.
  • The revenue generated from SGST goes to the State Government and
  • The revenue generated from UTGST goes to the concerned union territory authority
  • Rate of SGST is equal to CGST. For example: If the GST Rate of a product is 18%, CGST is applicable at 9% of the sales value and SGST is applicable at 9% of the sales value.

Taxpayer should deposit IGST, CGST, SGST collected from the customer with the GST Department and report such sales in the GST Return.

GST Return for Regular Dealer (Annual Plan) - Quarterly Scheme
Take help of an expert for payment of GST and filing GST Return
[Rated 4.8 stars by customers like you]
GST Return for Regular Dealer (Annual Plan) - Quarterly Scheme
Take help of an expert for payment of GST and filing GST Return
[Rated 4.8 stars by customers like you]

Example – IGST, CGST, SGST / UTGST

Mr.A in Gujarat sells goods to Mr.B in Gujarat for Rs.50,000. Mr.B resells these goods to Mr.C in Madhya Pradesh for Rs.1,00,000. Now, let us understand the applicability of GST below.

Transaction 1 between Mr A & Mr B: Intra-State Sale

Since the goods are moving from one place to another within the State, CGST @9% and SGST @9% would apply.

CGST = Rs.50,000*9% = Rs.4,500
SGST = Rs.50,000*9% = Rs.4,500

  • The invoice would show amounts of CGST and SGST separately.
  • Mr.A would be liable to collect & pay an output tax of Rs.4,500 to the Central Government and Rs.4,500 to the Gujarat Government.
  • Mr.B would get an Input Tax Credit of CGST Rs.4,500 and SGST Rs.4,500.

Transaction 2 between Mr.B and Mr.C: Inter-State Sale

Since the goods are moving from one state to another state, IGST @18% would apply.

IGST = Rs.1,00,000*18% = Rs.18,000

  • The invoice would show the amount of IGST charged.
  • Mr.B would be liable to pay an output tax of Rs.9000 (18,000-4500-4500)* to the Central Government after adjusting Input Tax Credit on the purchase.
  • Mr.C would get an Input Tax Credit of IGST Rs.18,000.

* Adjust the CGST Credit with first CGST and then IGST. Adjust the SGST Credit with first SGST and then IGST.

Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore
Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore

FAQs

When does UTGST apply ?

UTGST i.e. Union Territory GST applies when there is sale of goods or services within a union territory. Following are the union territories in India:

* Chandigarh
* Lakshadweep
* Daman and Diu
* Dadra and Nagar Haveli
* Andaman and Nicobar Islands
* Pondicherry

Eg: Mr.A located in Chandigarh sells goods to Mr.B in Chandigarh for Rs.10,000 taxable at GST @ 12%. In this case, Mr.A will collect CGST @ 6% of Rs. 600 and UTGST @ 6% of Rs. 600 from Mr.B.