How to Calculate Custom Duty on Export in India?

When you are shipping out certain products from India to overseas, regulations put forth by the Government of India mandate that you will have to pay a certain amount of customs duty. This export tariff is a form of indirect tax paid to the Customs Department of this country.

To make sure you are getting charged the right amount as per the kind of product exporter, it is crucial to know how to calculate export duty.

In India, export duty is collected by the Central Board of Indirect Taxes and Customs (CBIC). Functioning under the finance ministry’s department of revenue, this organisation provides a comprehensive framework of how customs duty should be collected from an exporter.

CBIC abides by rules and regulations as discussed in the Customs Tariff Act of 1975 to decide which products fall under the purview of export duty collection. The Second Schedule of this aforementioned act provides an extensive list of products for which you have to pay a duty fee while exporting.

This Second Schedule provides the HSN code alongside the description of the shippable goods, which is a global standard of classifying goods by the World Customs Organisation. Based on the type of product you are exporting, the Customs Act levies a certain rate of duty on these.

Please note that this rate of duty is charged in two different ways:

• By Percentage: In this scenario, a certain percent of indirect tax is levied on your product’s Free on Board [FOB] value. For instance, sugar has a duty rate of 20%.
• Based on Product Amount: On the other hand, an export duty of some products is decided by the quantity of it getting exported. For example, for every tonne of Basmati rice that you ship overseas, you will have to pay ₹12000 as its export duty.

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As it can be understood from the discussion above, finding out the rate of duty for the product you are exporting is a necessary step in calculating your total expenditure on tariff payments.

You can use export duties and tax calculators from Fintech platforms available online to find out this duty rate. Alternatively, you can also visit the CBIC site to do the same. In the latter scenario, you will need to follow these simple steps as discussed below to calculate the payable export duty amount.

Step 1: Visit the export-related section on the official website of India’s Customs Department.

Step 2: Use the tariff item code or description of the article as shown on your screen to find out the product you are exporting on the available list.

Step 3: Note down the amount provided under the column titled ‘Rate of duty’.

Step 4: If the rate is based on product quantity, then you will have to multiply this given amount by the exportable product’s volume to get a payable export tariff sum.

Step 5: Alternatively, if rate is given in percentage, follow this formula to calculate customs duty on export as given below. For this example, the rate of duty is assumed to be P%.

Payable export charge = FOB of exportable products x [P x 100]

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The rate of customs duty payable for a product is calculated keeping a number of crucial elements in consideration. Some of these include:

• Value of exporting goods
• Place of origin for products
• Place of acquisition of these commodities
• Materials used in order to produce goods in question
• Weight and dimension of these goods

Customs duty on export is charged for a number of reasons. These include following aspects as discussed below:

• Increases revenue earnings of the federal government via indirect tax collection, which in turn can lead to a sustainable development of a country.
• Ensuring domestic manufacturers can get their hands on indigenous raw materials at comparatively cheaper prices than their overseas competitions.
• Ability to function as a social mechanism of redistribution of capital so that wealth inequality in this country can be minimised down the line.
• To keep a check on the production of goods, so that export-centred overstocking does not lead to wastage and disrupt the supply chain.
• Limiting product export during inflation, so that domestic buyers have a sufficient supply of goods to meet their demands.

All in all, export duty collection can play a significant role in strengthening the fiscal health of a developing nation such as India. Therefore, you must know how to calculate export duty on your end. This way, if you are charged with an excess amount, you have a scope of claiming a refund for the same.