<p>When goods cross international borders, they attract a government-imposed tax called customs duty. When customs duty is levied in the country of export, it is called an export duty. When it is applied in the country of import, it is called an import duty. The import and export of items can attract not one but multiple customs duties, along with various other charges. These duties and charges, when combined, can add up to a considerable amount and impact your total shipping costs. Therefore, it is essential for importers and exporters to fully understand the customs duties applicable on their goods and how to calculate them.</p><p>In this blog, we will be discussing import duties in India. If you plan to import goods into India, this article will give you an idea of the various import customs duties, taxes, and other government charges you will be paying.&nbsp;</p><p>‍<a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 1.png" width="auto" style="width: auto; height: auto;"></a></p><p><strong>Import duty in India</strong></p><p>India, like any other country, levies import duties to a) protect the local economy from cheap foreign products, b) earn government revenue, and c) monitor the movement of goods crossing its borders. The duty rate or tariff varies from product to product and is determined on the basis of factors such as where the product is made or acquired, and what it is made of.</p><p>In India, import duties (or rather, all customs duties) are governed by the Customs Act, 1962, and the Finance Act. These charges are collected by the Central Board of Indirect Taxes and Customs (CBIC). Changes in customs duty rates are announced in the annual Budget, which is presented on the first day of February, or through notifications in the Gazette of India.&nbsp;</p><p><strong>Types of import duties in India</strong></p><ul><li><strong>Basic Customs Duty (BCD): </strong>As its name suggests, this is the basic tax levied on imported goods. The rate of duty ranges from zero percent to 100 percent. The government might exempt certain goods (Covid-19 vaccines and life-saving drugs, for example) from BCD by imposing a zero percent rate. Imports might also invite a reduced or zero percent BCD rate if imported under a free trade agreement.&nbsp;</li><li><strong>Countervailing Duty (CVD): </strong>Also called Additional Customs Duty,this is charged on goods that have benefited from government subsidies and/or tax breaks in the country of manufacture. The CVD ensures local products are not at a disadvantage due to cheaper imports. In India, CVD is levied at rates of zero percent, six percent and 12 percent.&nbsp;&nbsp;&nbsp;</li><li><strong>Anti-dumping Duty (ADD): </strong>This is a duty charged on goods that are imported at a much lower value than their normal market price. Exporting countries might resort to<a href="https://www.dgtr.gov.in/faq" rel="noopener noreferrer" target="_blank"> dumping</a> to gain an unfair advantage in a foreign market or to get rid of excess stock. Importing countries use the ADD to protect the local industry from a flood of cheap imports. In April,<a href="https://www.financialexpress.com/economy/india-imposes-anti-dumping-duty-on-chemical-from-4-regions/2242011/" rel="noopener noreferrer" target="_blank"> India levied an ADD</a> on certain chemical imports from the European Union, Saudi Arabia, United Arab Emirates and Chinese Taipei for a period of five years to protect local producers. Under Indian law, the ADD charged cannot exceed the dumping margin, which is the difference between the product’s normal price and the price at which it is imported.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li><strong>Social Welfare Surcharge (SWS): </strong>This surcharge was introduced by the Indian government in 2018 to fund its social welfare projects related to health, education, and social security. It replaces the Education Cess and the Secondary and Higher Education Cess that were previously applied on imported goods. Goods exempt from Education Cess do not attract SWS. Social welfare surcharge is levied at a rate of 10 percent on the aggregate of duties and cesses applied.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li><li><strong>Safeguard Duty: </strong>Indian Customs levies a safeguard duty on goods whose increasing import volumes are deemed a threat to domestic producers. For example,<a href="https://www.livemint.com/industry/energy/govt-imposes-safeguard-duty-on-solar-cells-for-one-more-year-till-july-2021-11596093358953.html" rel="noopener noreferrer" target="_blank"> solar cells imported from China</a> currently attract a safeguard duty. The objective of this duty is to give temporary relief to local industry. The duty rate is notified by the government and is usually calculated on the basis of potential losses incurred by local industries.&nbsp;&nbsp;&nbsp;</li><li><strong>Protective Duty: </strong>Similar to safeguard duty, protective duty is levied on imports with the objective of protecting the interests of domestic producers. Protective duty is imposed on the recommendation of the Tariff Commission, which must be approved by the government. The Commission also recommends the duty rate. Protective duty is considered a more permanent form of relief to domestic industries than safeguard duty because it requires the government to <a href="https://indiankanoon.org/doc/1130442/" rel="noopener noreferrer" target="_blank">pass a Bill in Parliament</a>, which might then become law.&nbsp;&nbsp;&nbsp;</li><li><strong>National Calamity Contingent Duty (NCCD):</strong> This is levied on imported goods specified in the Seventh Schedule to the Finance Act, 2001 (tobacco products, petroleum oils, certain types of motor vehicles, etc). The duty rate is also specified. The NCCD finances the National Disaster Response Fund, which the government uses to meet expenses incurred on disaster relief and rehabilitation.&nbsp;</li><li><strong>Agriculture Infrastructure and Development Cess (AIDC): </strong>This is charged on 29 products, including gold, silver, apples, alcohol (excluding beer), pulses, palm oil, urea, petrol and diesel. It was introduced in Budget 2021-22 with the objective of funding agriculture infrastructure development. The<a href="https://www.indiatoday.in/business/budget-2021/story/union-budget-2021-agricultural-infrastructure-cess-100-imposed-alcoholic-beverages-1764763-2021-02-01" rel="noopener noreferrer" target="_blank"> AIDC rate</a> ranges from 1.5 percent (coal, lignite, peat) to 100 percent (alcoholic beverages).&nbsp;&nbsp;&nbsp;</li></ul><p><strong>Other import-related charges</strong></p><p><a href="https://cogoport.com/signup/en-IN/?utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-1.png" width="auto" style="width: auto; height: auto;"></a></p><ul><li><strong>Integrated Goods and Services Tax (IGST): </strong>In addition to customs duties in India, imported goods invite IGST. It is charged at rates of 5 percent, 12 percent, 18 percent, and 28 percent, as stated in the IGST Act, 2017. The IGST is levied on the assessable value of the imported goods plus the value of import duties charged. (The GST is a single, indirect tax replacing multiple Central and state taxes such as excise duty, sales tax and value-added tax. It has two components – Central GST or CGST and State GST or SGST. The IGST is CGST plus SGST)&nbsp;</li></ul><p><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/60f17043fb2a0c60e4e7c4c7_1.png" alt="60f17043fb2a0c60e4e7c4c7_1.png"></p><p>Note: This example is for an imported product that attracts BCD and no other import duties</p><p>Are you an exporter? Read our guides on exporting with and without payment of IGST<a href="https://www.cogoport.com/blogs/gst-refunds-part-2-exports-with-payment-of-igst" rel="noopener noreferrer" target="_blank"> here</a> and<a href="https://www.cogoport.com/blogs/gst-refunds-part-1-export-without-payment-of-igst" rel="noopener noreferrer" target="_blank"> here</a>.&nbsp;</p><p><br></p><ul><li><strong>Compensation Cess: </strong>In addition to IGST, certain notified imports (tobacco products, coal, petroleum, cars) attract a compensation cess. This cess seeks to compensate the Indian states for any loss of tax revenue arising from the implementation of GST in its first five years (2017-2022). With GST, the states lost the right to impose local indirect taxes on goods. The cess covers imports because imports are treated as inter-state supplies under GST. To calculate compensation cess, the prescribed rate is applied to the transaction value, which is the assessable value of the goods plus import duties charged.&nbsp;&nbsp;&nbsp;</li><li><strong>Customs Handling Fee: </strong>In addition to import duties, India charges a one percent customs handling fee on all imports. This is charged on the total value of the goods plus the freight costs and insurance.&nbsp;</li></ul><p><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/60f1713094039c106d361de1_2.png" alt="60f1713094039c106d361de1_2.png"></p><p><strong>How import duty is calculated</strong></p><p>Import duty is calculated as a percentage of the assessable value of the imported goods. If the goods are imported under the <a href="https://www.cogoport.com/blogs/incoterms-2020" rel="noopener noreferrer" target="_blank">Cost, Insurance, and Freight (CIF) Incoterm</a>, assessable value is CIF plus customs handling fee (of one percent). To get the CIF value, simply add the cost or invoice value of the goods and the insurance and freight costs.&nbsp;&nbsp;</p><p>Here’s an example of how to calculate the total duty due on an import consignment that is shipped under CIF and on which basic customs duty, social welfare surcharge and IGST are applicable.&nbsp;&nbsp;</p><p><a href="https://api.whatsapp.com/message/N4CI7UNDFE2ZM1?autoload=1&amp;app_absent=0&amp;utm_source=web&amp;utm_medium=blog&amp;utm_campaign=general" target="_blank"><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog Banner WA 2.png" width="auto" style="width: auto; height: auto;"></a></p><p><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/60f171b2d7f5a4b72cbfc431_3.png" alt="60f171b2d7f5a4b72cbfc431_3.png"></p><p>Note: Assessable value might vary depending on the Incoterm used.</p><p><strong>How to pay import duty in India</strong></p><p>After the imported goods are cleared by Indian Customs, you can pay import duties online on Icegate, the Indian Customs’ electronic data interchange platform. Just follow these steps:</p><p><br></p><ul><li>Go to the Icegate e-payment portal</li><li>Log in using your Icegate credentials or by entering your Import/Export Code</li><li>Click on the e-payment option</li><li>You will see all your unpaid e-challans or electronic payment demands</li><li>Select the challan you wish to pay</li><li>Select your bank and payment method</li><li>You will be redirected to the bank’s payment gateway</li><li>Make your payment</li><li>Once payment is complete, you will be redirected to Icegate</li><li>Here, you can take a print of you payment receipt&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul><p><strong>Note: </strong>IGST payments must be made on the<a href="https://www.gst.gov.in/" rel="noopener noreferrer" target="_blank"> GST portal</a> or in cash.&nbsp;</p><p><br></p><p><strong>Factors affecting import duty</strong></p><p>There are several factors to keep in mind while calculating import duty:</p><p><br></p><ul><li><strong>Harmonised System (HS Code):</strong> The rate of import duty charged on a product depends on its HS Code. The<a href="https://www.cogoport.com/blogs/hs-code-all-about-classification-of-goods-in-export-import" rel="noopener noreferrer" target="_blank"> HS Code</a> is a universally-accepted classification system for traded goods. Under this system, each product is assigned a unique six-digit code. Customs authorities check a product’s HS Code to assess the duty due on it. Countries are allowed to add more digits to the six-digit HS Code for further classification. As a result they have their own versions of the HS Code. The Indian version is called the<a href="https://www.cogoport.com/blogs/hs-code-all-about-classification-of-goods-in-export-import" rel="noopener noreferrer" target="_blank"> ITC-HS Code</a>, which assigns an eight-digit code to each traded product.&nbsp;&nbsp;&nbsp;</li><li><strong>Free Trade Agreements (FTAs): </strong>Remember to check if your country has a free trade agreement with the country you import goods from. Lower duty rates – called preferential tariffs – are one of the many benefits of FTAs. India has FTAs with multiple countries and regions. Under these agreements, partner countries enjoy reduced import duty rates and even duty exemptions on certain traded goods.</li><li><strong>Rules of Origin: </strong>Preferential tariffs under FTAs depend on ‘originating status’. This means a trader importing goods into India is eligible for preferential tariffs only if the goods are made in the country of export with which India has an FTA. To claim a duty benefit under an FTA, the importer must furnish at the time of import a Certificate of Origin as well as a <a href="https://economictimes.indiatimes.com/small-biz/trade/exports/insights/closer-scrutiny-of-imports-under-ftas-importers-now-need-to-comply-with-stringent-norms/articleshow/78328665.cms" rel="noopener noreferrer" target="_blank">self-declaration</a> that the goods qualify as originating goods and are, therefore, eligible for preferential tariffs. Furthermore, the importer is required to find information regarding the goods’ originating status and maintain this for at least five years.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul><p>Read about India’s experience with FTAs<a href="https://www.cogoport.com/blogs/foreign-trade-agreements-can-boost-indias-exports-if-done-right" rel="noopener noreferrer" target="_blank"> here</a></p><p><img src="https://cdn.cogoport.io/cms-prod/cogo_public/vault/original/Blog-Banner-Portal-2.png" alt="" width="300px"></p><p><strong>Duty exemption – what is it?</strong></p><p>India has several duty exemption schemes that allow the duty-free import of raw materials that go into making products for export. These schemes not only apply to raw materials and items that are physically incorporated into the finished products but also fuel and packaging material used in the production process. The main objective of these duty exemption schemes is to help Indian exporters and promote Indian exports. Hence, they are also called export promotion schemes. Two popular duty exemption schemes in India are:</p><p><br></p><ul><li><strong>Advance Authorisation (AA) Scheme: </strong>Raw materials and inputs for export production attract zero percent import duty, provided a minimum 15 percent value addition is made to the final product. To benefit from this scheme, an exporter must apply for an AA licence from the website of the Directorate General of Foreign Trade (DGFT) and import the inputs within 12 months of receiving it. Furthermore, they must export the final product&nbsp;within 18 months of receiving the licence.&nbsp;&nbsp;&nbsp;</li><li><strong>Duty-Free Import Authorisation (DFIA): </strong>Under this scheme, an exporter can import inputs without paying basic customs duty on them. However, there is a 20 percent value-addition requirement. Also, DFIA imports can be made only after the export process is completed. The exporter can apply for a DFIA licence, valid for 12 months, from the regional port authority within 12 months of the export date.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li></ul><p>To know more about India’s export promotion schemes, click<a href="https://www.cogoport.com/blogs/export-incentives-types-benefits-and-everything-else-you-need-to-know" rel="noopener noreferrer" target="_blank"> here</a>.&nbsp;</p>

Costs to Clear your Imported Goods in India

<p>If you are in the business of exporting and importing goods, you would be familiar with the Harmonised Commodity Description and Coding System, better known as the Harmonised System (HS) or Harmonised System of Nomenclature (HSN). It is a universally accepted method of classifying traded goods. Its main function is to help customs authorities identify products and assess the right duties and taxes on them. In the Harmonised System, each product is assigned a unique numerical code called the HS code. This code has a minimum of six digits and can typically go up to 10 digits<strong> (</strong>though China has a 13-digit code<strong>)</strong>. While exporting or importing, it is mandatory to include your product&rsquo;s HS code in your shipping documents, such as your commercial invoice, packing list and shipping bill. And as an exporter or importer, it is your legal responsibility to correctly identify your product&rsquo;s HS code. Incorrect classification can lead to problems that you&rsquo;d be better off avoiding.</p>
<p>Given the importance of the Harmonised System and its correct application in international trade, this article contains all the relevant information you require, including:</p>
<ul>
<li>What is the Harmonised System?</li>
<li>What is an HS code?</li>
<li>Why are they important?</li>
<li>What is the ITC (HS) code?</li>
<li>How do you use HS codes correctly?</li>
<li>What happens when you use them incorrectly?</li>
<li>What is HS Code under GST - New rule?</li>
<li>How to find the HS code for your product&nbsp;&nbsp;&nbsp;</li>
</ul>
<p>&zwj;</p>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/606c3cc70c4fb69eefd70f86_060421_Cogoport_HS_Code.jpg" alt="All about HS Code " width="auto" height="auto" loading="lazy"></div>
</figure>
<p>&nbsp;</p>
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<h2><strong>What is the Harmonised System?</strong></h2>
<p>The Harmonised System was a solution to the complications and costs associated with having different product classification systems for different countries. Before its creation, a single product could be classified as many as 17 times in a single transaction, according to this<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener"> report</a>. The Harmonised System came into effect on<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener"> January 1, 1988</a>. It is administered and updated every five years by the Belgium-headquartered World Customs Organisation (WCO). The system is used by more than 200 countries and economies and covers more than 98% of goods in international trade.</p>
<p>The Harmonised System comprises more than 5,000 groups of goods. These are grouped into 97 Chapters and 21 Sections. Each chapter is divided into headings and, where appropriate, sub-headings. As a rule, goods are arranged in order of degree of manufacture &ndash; raw materials first, then unworked products, semi-finished products and, finally, finished products. So, Chapter 1 is &ldquo;Live Animals&rdquo;, Chapter 41 is &ldquo;Raw Hides and Skins (other than Furskins) and Leather&rdquo; and Chapter 64 is &ldquo;Footwear&rdquo;.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
<p>In the Harmonised System, each product is identified by a six-digit code, arranged in a legal and logical way based on certain rules. The six digits of an HS code can be broken down into three parts:</p>
<ul>
<li>The first two digits identify the chapter the goods fall in. Example: 09 (Coffee, Tea, Mat&eacute; and Spices)</li>
<li>The next two digits identify a heading within that chapter. Example: 0901 (Coffee, whether or not roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion)</li>
<li>The last two digits denote a sub-heading that makes the classification even more specific. Example: 090111 (Coffee, not roasted, not decaffeinated). In the absence of a subheading, the last two digits will be indicated by zeroes.</li>
</ul>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/6068ceae9a578d23c672b4e3_1.jpg" alt="HS Code Structure" width="auto" height="auto" loading="lazy"></div>
<figcaption>Source: World Customs Organization</figcaption>
</figure>
<p>&zwj;</p>
<p>There are certain rules that govern the Harmonised System and HS codes. These are:</p>
<p><strong>1. General Rules for the Interpretation of the Harmonised System: </strong>These ensure a specific product is universally associated with a single heading (and subheading) and not with any other. There are six general rules of interpretation (GRI) and they are hierarchical, as in GRI 1 takes precedence over GRI 2 and so on.</p>
<ul>
<li><strong>GRI 1</strong> states that &ldquo;classification is determined by the terms of the headings and of the section or chapter notes&rdquo;. If classification cannot be thus determined, then GRI 2 to GRI 5 are applied.</li>
<li><strong>GRI 2</strong> has two parts. <strong>GRI 2 (a) </strong>extends the scope of a heading to cover not just finished products but also &ldquo;incomplete&rdquo;, &ldquo;unfinished&rdquo;, &ldquo;unassembled&rdquo; or &ldquo;disassembled&rdquo; products, provided they have the &ldquo;essential character&rdquo; of the finished product. <strong>GRI 2 (b) </strong>extends the scope of a heading to cover mixtures or combinations of materials or substances, which must then be classified according to GRI 3.</li>
<li><strong>GRI 3</strong> lays down the rules for classifying goods that fall under more than one heading. <strong>GRI 3 (a) </strong>calls for classification under the heading with the most &ldquo;<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener">specific description</a>&rdquo;. But if two or more headings refer to only a part of the materials or substances in the composite product, then these headings are regarded as &ldquo;<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener">equally specific</a>&rdquo;. In this case, <strong>GRI 3 (b) </strong>applies, which<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener"> says</a> the product will be placed in the &ldquo;heading applicable to the material or component which gives them their essential character&rdquo;. If the product cannot be classified on the basis of GRI 3 (a) and GRI 3 (b), then GRI 3 (c)<a href="http://harmonizedsystem.wcoomdpublications.org/pdfs/WCOOMD_MSH_EN.pdf" target="_blank" rel="noopener"> provides</a> for its&nbsp; classification &ldquo;in the heading which occurs last in numerical order among those which equally merit consideration in determining their classification&rdquo;.</li>
<li><strong>GRI 4</strong> applies to goods not specifically covered by any heading (perhaps because they are newly introduced). These will then fall in the &ldquo;heading appropriate to the goods to which they are most akin&rdquo;.</li>
<li><strong>GRI 5</strong> applies to the classification of boxes, containers and cases in which products are packed (cases for cameras, guns, jewellery, etc). The classification of any packaging that doesn&rsquo;t fall under GRI 5 is left to the discretion of countries.</li>
<li><strong>GRI 6</strong> applies to the classification of goods in the sub-headings.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
</ul>
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<p><strong>2. Section, chapter and subheading notes: </strong>Certain sections, chapters and subheadings of the Harmonised Systems come with notes. These notes help interpret the specific sections and chapters by precisely defining their scope and limits. Like the GRIs, these notes are legally binding and are therefore also called &ldquo;legal notes&rdquo;.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
<h2><strong>Importance of the Harmonised System</strong>&nbsp;&zwj;</h2>
<p>The primary function of the Harmonised System is to act as a basis for customs tariffs worldwide. But it has other uses as well, such as:</p>
<ul>
<li>The collection of international trade statistics</li>
<li>The collection of internal taxes such as excise duties and value-added tax (VAT)&nbsp;</li>
<li>As a basis for freight and transport tariffs</li>
<li>As a basis for<a href="https://www.wto.org/english/tratop_e/roi_e/roi_info_e.htm" target="_blank" rel="noopener"> rules of origin</a> (which are the criteria to determine the national source of a product)&nbsp;</li>
<li>As a basis for the setting of preferential tariffs and MFN (most favoured nation) tariffs under free trade agreements</li>
<li>As a basis for governments to decide their trade policies&nbsp;</li>
<li>For the monitoring of controlled goods (narcotics, chemical weapons, endangered species, waste, etc)</li>
<li>As a facilitator of customs controls and procedures such as risk assessment and compliance</li>
</ul>
<h2><strong>What is the ITC-HS code?&nbsp;</strong>&zwj;</h2>
<p>As mentioned earlier, an HS code can go beyond the WCO-prescribed six digits. This is because countries are allowed to add more digits to the original six-digit code for further classification. These additional digits typically vary from country to country.</p>
<p>The United States uses a 10-digit code where the first six digits are the WCO-provided HS code. The US code is called a<a href="https://help.cbp.gov/s/article/Article-236?language=en_US" target="_blank" rel="noopener"> Schedule B number</a> for export goods and a Harmonised Tariff Schedule (HTS) code for import goods.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
<p>Similarly, in India, goods for export and import have an eight-digit code called an<a href="https://www.dgft.gov.in/CP/?opt=itchs" target="_blank" rel="noopener"> ITC (HS) code</a>, where ITC stands for Indian Trade Classification and/or Indian Tariff Code. This system has two schedules &ndash; Schedule I for imports and Schedule II for exports. Schedule I has 21 sections and 98 chapters. The chapters are further divided into headings and subheadings. Schedule II has 97 chapters. The ITC (HS) codes are developed, maintained and updated by the Directorate General of Foreign Trade (DGFT).</p>
<p>An ITC (HS) code comprises the six-digit HS code plus a two-digit national &ldquo;tariff item code&rdquo;. For example, if the ITC (HS) code is 09011111, then</p>
<ul>
<li>09 &ndash; Coffee, Tea, Mat&eacute; and Spices</li>
<li>0901 &ndash; Coffee, whether or not roasted or decaffeinated; coffee husks and skins; coffee substitutes containing coffee in any proportion</li>
<li>090111 &ndash; Coffee, not roasted, not decaffeinated</li>
<li>09011111 &ndash; Arabica plantation: A Grade</li>
</ul>
<figure class="w-richtext-figure-type-image w-richtext-align-center" data-rt-type="image" data-rt-align="center">
<div><img src="https://uploads-ssl.webflow.com/5e57ba59552cf400c593fd16/6068cfb40f990c23f15add78_2.jpg" alt="ITC (HS) Code Structure India" width="auto" height="auto" loading="lazy"></div>
<figcaption>Source: Indian Customs</figcaption>
</figure>
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<h2><strong>How to use HS codes, and the consequences of incorrect usage</strong></h2>
<p>HS codes are used by governments, customs authorities, statistical organisations, regulatory bodies and traders. As an importer/exporter, you are legally bound to classify your goods correctly and enter the correct HS code in your shipping documents.</p>
<h3>Using the correct HS code ensures:</h3>
<ul>
<li>You pay the right duty</li>
<li>You receive the benefits you are eligible for, such as a suspension of customs duty</li>
<li>You are informed of whether your product attracts anti-dumping duty, requires a special licence to be shipped or comes under a trade quota&nbsp;&nbsp;</li>
</ul>
<h3>Incorrect HS code usage means you end up paying a higher or lower rate of duty. When discovered, this can result in:</h3>
<ul>
<li>Steep fines and penalties imposed by customs authorities</li>
<li>Denial of import-export privileges</li>
<li>Denial of refund or a lengthy process to claim a refund if you have paid a higher rate of duty&nbsp;</li>
<li>Payment of duty difference plus interest if you have underpaid</li>
<li>Confiscation of goods if you have underpaid, which is the practice in some countries. The goods are released only after the fine has been paid and certain documents submitted&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
<li>Rejection of input credit tax (ITC) claim under the Goods and Services Tax (GST)&nbsp;</li>
<li>Shipping delays and the effects of that on your business</li>
<li>Additional expenses (demurrage/detention/storage charges, etc) as a result of the delay&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
</ul>
<h2><strong>HS Code under GST &ndash; New rule</strong></h2>
<p>As of April 1, the Indian government has made it mandatory for Goods and Services Tax (GST) taxpayers with a turnover of Rs 5 crore or more to include the international six-digit HS code in invoices they issue for the sale of taxable goods and services. The earlier requirement was a four-digit code. Similarly, taxpayers with a turnover of up to Rs 5 crore must include a four-digit HS code on B2B (business to business) invoices. The earlier requirement was a two-digit code. Thus far, many GST taxpayers have been voluntarily including six-digit HS codes on their invoices and GST returns. The objective behind the move, according to this <a href="https://www.livemint.com/news/india/6digit-hsn-code-mandatory-in-invoices-for-biz-with-over-rs-5-crore-turnover-11617260839364.html" target="_blank" rel="noopener">report</a>, is to make taxpayers furnish a more precise HS code so that tax officials can &ldquo;arrest tax evasion from fake invoices and irregular tax credit claims&rdquo;.</p>
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<h2><strong>How to find the right HS code for your product</strong></h2>
<ul>
<li><strong>Use search tools: </strong>In India, you can use the ITC (HS) code search tools on Icegate, which is Indian Customs&rsquo; electronic data interchange platform, or on the<a href="https://www.indiantradeportal.in" target="_blank" rel="noopener"> Indian Trade Portal</a>, which is the property of the Commerce Ministry. In both search tools, you need to enter part of the ITC (HS) code, if you know it, or a brief description of your product. Similarly, to move goods in and out of the US, you can use the US Census Bureau&rsquo;s<a href="https://uscensus.prod.3ceonline.com" target="_blank" rel="noopener"> Schedule B search tool</a> or the US International Trade Commission&rsquo;s<a href="https://hts.usitc.gov" target="_blank" rel="noopener"> HTS search tool</a>. For the UK, you can use the Trade Tariff tool, provided you&nbsp; know the type of your product, the material used to make it, and its production method.</li>
<li><strong>Go through HS code lists: </strong>A simple Google check is all it takes to find one of these lists. The current version of the Harmonised System, which is the 2017 edition or HS 2017, is available on the WCO website. In India, you can search the<a href="http://www.dgft.org/itc_hs_code.html" target="_blank" rel="noopener"> DGFT</a> website or several non-governmental portals for the ITC (HS) code list. In the US, you can look up the Harmonised Tariff Schedule on the<a href="https://hts.usitc.gov/current" target="_blank" rel="noopener"> ITC website</a>. Once you get to the list, click on the relevant chapter and search through the headings and subheadings to find the right HS code for your product.</li>
</ul>
<h3><strong>But keep in mind&hellip;</strong></h3>
<ul>
<li>HS codes vary from country to country. If you are exporting, for example, find out the correct HS code for your product in the country of import, as it might be different from the HS code for the same product in your country. A single digit might be all that is different but it could lead to your goods getting stuck, delayed or even rejected.&nbsp;</li>
<li>HS 2022 has been approved and will come into effect from January 1, 2022. With 351 amendments, it makes several major changes to HS 2017. Rules governing the classification of certain goods &ndash; including electronic waste, tobacco and nicotine-based products and smartphones &ndash; will reportedly change. Traders must familiarise themselves with these changes before the new system kicks in.</li>
<li>Look out for updates and amendments. In June 2020, for example, the Indian government made<a href="https://content.dgft.gov.in/Website/Noti%2010%20dated%2011.06.2020%20-%20SCOMET%20update_0.pdf" target="_blank" rel="noopener"> amendments</a> to Appendix 3 of Schedule II of the ITC (HS) Classification system, which deals with the export of SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) items. These include controlled substances such as nuclear material, toxins, aerospace systems, electronics and even computers. The amendments included changes in headings, new entries, the deletion of some entries and the addition of some notes, among others.</li>
<li>Most traders leave the classification of their products to their customs agents. Make sure you pick a professional with experience in this field. Remember, customs will hold the owner of the goods (exporter or importer) and not the agent responsible for any classification violation.&nbsp;</li>
</ul>

HS Code: Classification Of Goods In Export-Import

<p>Our previous blog, '<a href="https://www.cogoport.com/en-IN/blogs/mandatory-documents-for-import-export" target="_blank" rel="noopener">3 Mandatory Documents Exporters And Importers Need for Hassle-free Shipping</a>', dealt with the must-have documents for exporters and importers sending and receiving goods by sea. In this follow-up blog, we will look at some of the most common supporting documents required in the shipping process, which exporters and importers need in order to get their goods cleared by customs.</p>
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<p>The term &ldquo;supporting&rdquo; suggests these documents are secondary to the mandatory documents. It is important to understand that this does not necessarily mean they are optional. It only means the requirement for a specific supporting document depends on various factors, including but not limited to:</p>
<ul>
<li>The nature of the cargo</li>
<li>Rules and regulations of the exporting or importing country</li>
<li>Trade agreements between certain countries</li>
<li>Bans imposed on certain goods by certain countries&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</li>
</ul>
<p>Take the example of a Country of Origin (COO) certificate, which we will deal with in detail later in this blog. Most countries demand a COO certificate for an export shipment to get customs clearance. This makes the document mandatory in such cases. But there are also countries that do not demand such a certificate. Hence, a COO certificate falls in the category of secondary documents.</p>
<h3><strong>Documents Required for Import Customs Clearance</strong>&nbsp;&nbsp;</h3>
<p>As it is with exports, the process of importing a particular product is completed only when the buyer receives the goods. Thus, for the imported goods to get customs clearance, the importer might have to furnish these additional documents at the port of entry:</p>
<h3><strong>1. Import Licence</strong></h3>
<p>An import licence is a permit issued by the DGFT that allows the import of goods that are subject to government regulations. It specifies the amount that can be imported, and is usually valid for 18 months to a year, depending on the goods. Most goods are freely importable in India. But in the case of regulated goods &ndash; chemicals, pharmaceuticals, precious stones, plants, animals, etc &ndash; the importer must obtain an import licence and present it at the time of customs clearance.</p>
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<h3><strong>2. Insurance Certificate</strong></h3>
<p>This document, issued by an insurance company, certifies that the goods are covered for any loss or damage during transit. It backs up the importer&rsquo;s declaration on the terms of delivery and helps customs ascertain the duties due on the goods.</p>
<h3><strong>3. Purchase Order and Letter of Credit</strong></h3>
<p>A purchase order is a contract issued by the buyer (importer) to the seller (exporter) confirming the purchase of goods. It contains details of the goods, their quantity and price, payment and delivery terms. Once the purchase order is finalised, the importer contacts a bank (called the issuing bank) to obtain a letter of credit, which is a promise by the bank to pay the exporter the agreed upon sum on behalf of the importer.</p>
<h3><strong>4. Technical Write-up/Literature</strong></h3>
<p>If the cargo is machinery, for example, customs authorities might ask for a written explanation of its functions to help them determine the product&rsquo;s market value.</p>
<h3><strong>5. Test Report</strong></h3>
<p>When customs authorities are unable to assess the quality and thereby value of certain goods, they might send a sample to an authorised government laboratory for testing. The lab tests the product and provides a test report, on the basis of which the cargo is cleared.&nbsp;&nbsp;</p>
<h3><strong>6. Industrial Licence</strong></h3>
<p>An importer can avail of import benefits under government guidelines by submitting a copy of this to customs.</p>
<h3><strong>7. Registration cum Membership Certificate</strong></h3>
<p>This is a certificate of registration with the Federation of Indian Export Organisations (the country&rsquo;s apex export promotion organisation) or the various Export Promotion Councils or Commodity Boards. It is required for importing (or exporting) restricted items and to avail of benefits under the Foreign Trade Policy or those offered by customs and excise authorities.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
<h3><strong>8. Duty Exemption Documents&nbsp;</strong></h3>
<p>For duty exemptions under government schemes such as the <a href="https://economictimes.indiatimes.com/small-biz/trade/exports/pre-exports/trading-with-the-world-export-promotion-schemes-provided-by-government-of-india/articleshow/70639514.cms?from=mdr">Duty Exemption Entitlement Certificate (DEEC) and Export Promotion Capital Goods (EPCG)</a>, the importer must present the relevant documents during clearance.</p>
<h3><strong>9. Central Excise Document</strong></h3>
<p>This is required to avail of central excise benefits, if applicable.</p>
<h3><strong>10. GATT/DGFT Declarations</strong></h3>
<p>Both the General Agreement on Tariffs and Trade (GATT), a legal document between multiple countries, and the DGFT declaration establish standards for participating in international trade. These documents may be required for import customs clearance.</p>
<h3><strong>Documents Required for Export Customs Clearance</strong></h3>
<p>To start with, these are some but not all of the supporting documents exporters in India might be asked to submit at the time of customs clearance:&nbsp;</p>
<h3><strong>1. Export Licence</strong></h3>
<p>A licence issued by the Directorate General of Foreign Trade (DGFT), it allows exporters to trade in goods that come under the restricted category of the <a href="https://www.cybex.in/hs-codes" target="_blank" rel="noopener">Indian Trade Classification-Harmonised System Codes</a>. It must be produced when the exporter is shipping his first cargo.</p>
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<h3><strong>2. Proforma Invoice</strong></h3>
<p>A proforma invoice is a preliminary invoice issued by the exporter to the importer. It differs from a regular invoice in that it is not a demand for payment. It includes a detailed description of the goods, their price, terms of sale and delivery details.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</p>
<h3><strong>3. Country Of Origin (COO) Certificate</strong></h3>
<p>A COO certificate vouches that the goods being shipped were produced, manufactured and processed in a particular country. It includes an exporter declaration and an inspection certificate (by a state employee or relevant agency). Most countries demand a COO certificate for customs clearance.</p>
<h3><strong>4. Letter of Credit</strong></h3>
<p>The exporter might need to acquire a letter of credit from the importer&rsquo;s bank, stating that the importer will go through with the payment. In some cases, the goods can be dispatched only after the exporter produces this document.</p>
<h3><strong>5. Warehouse Receipt</strong></h3>
<p>The Business Dictionary defines a warehouse receipt as a &ldquo;receipt for goods left for safekeeping in a warehouse&rdquo; and a &ldquo;document of title&hellip; guaranteeing existence and availability of a specified quantity and quality of a commodity, and used as an instrument of transfer in cash (spot) and futures transactions&rdquo;. It is proof that the goods authorised for sale are available and ready to be transferred to the buyer.&nbsp;&nbsp;&nbsp;</p>
<h3><strong>6. Health Certificates</strong></h3>
<p>These are mostly required for food products. They certify that the goods comply with safety standards and export regulations, and are fit for human consumption.</p>
<h3><strong>7. Dangerous Goods Forms</strong></h3>
<p>These are required for goods considered dangerous by the International Maritime Organisation, such as flammable liquids, gases, corrosives and toxic substances.&nbsp;</p>
<h3><strong>8. Consular Invoice</strong></h3>
<p>Some importing countries insist on this embassy-attested document. The exporter can get this from a consular representative of the country he is shipping to.</p>
<h3><strong>9. Insurance Certificate</strong></h3>
<p>This certifies that the exporter has insurance cover for the cargo being shipped.&nbsp;<br><br><strong>Note: </strong>These are by no means complete lists of supporting documents required in the international shipping process. Businesses and individuals exporting from India or importing into India might be required to submit even more paperwork. Therefore, exporters and importers are advised to check with their agents or shipping lines for any country-specific or product-specific documentation requirements for a hassle-free shipping experience.</p>

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