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What is Export Duty in India?

In the one-year timespan of January 2021 to January 2022, the market of India’s merchandise export had increased by almost 24%. Suffice it to say, exporting goods has continued to be a bedrock of this country’s economic growth.

However, as certain tariffs are levied on goods shipped overseas, it is always beneficial to know the meaning of export duty.

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What Is Export Duty?

When a seller is exporting certain goods to a different country, he or she remains responsible for paying off a certain taxation charge for this endeavour. This tariff is referred to as an export duty.

Notably, in India, this tax is levied based on the policies set forth by the Central Board of Indirect Taxes and Customs (CBIC). Therefore, sellers have to submit adequate export duty to the customs department of this country.

What is the Importance of Export Duty in India?

Export charges have a pivotal role to play in a sustainable socioeconomic expansion of a financially developing nation like India. Some of its crucial aspects had been discussed below.

Redistributive Effects of Export Duty

In simple terms, redistribution refers to a reallocation of capital via diverse means of social mechanisms which are intermediated by the government of a country. So, a government implements certain monetary policies, welfare schemes or taxation laws to ensure income inequalities can be significantly reduced.

So, with means such as export duty, a developing nation can take a significant step towards income redistribution between producers of a product to its customers. As a result, the discretionary expense capability of a household can increase exponentially – benefitting the GDP growth of a country.

Substantial Tax Revenue Generation

If a nation enjoys some sort of stronghold over the competitive global market about the ability to supply a certain range of goods, then the federal government can hike its tax revenue by charging a lump sum tariff on these products.

Notably, for an emergent nation such as India, utilising a scope of ensuring monopoly profit in the worldwide marketplace can be a game-changer in the long run. Naturally, such a notable rise in the government general fund of an exporting country can lead to its comprehensive welfare improvement.

Levelling the Field for India’s Domestic Industries

The true meaning of export duty charges also lies in the effort of the government of India to safeguard the indigenous industries of the country from unfair competition and trade practices.

To elaborate, homegrown businesses of a country might be in exponential need of certain raw materials to meet the market demands for specific products. Therefore, the federal government can levy a comparatively higher tariff as the export charge on such raw materials. As a result, the domestic businesses will be able to access these required resources by spending a significantly lesser amount than their global counterparts.

Export Duty as a Tool for Supply Chain Management

If the domestic market of a nation is overproducing a certain product with large-scale bulk exporting in mind, it can turn out to be counterproductive in the end. Excessive supply of specific goods will inevitably saturate the market, reducing its demand significantly.

Not only can such issues lead to mass unemployment when all is said and done, but also makes businesses vulnerable to litigation. For instance, bulk production without management can cause inadequate inventory management – compromising the quality of the goods in question. Therefore, such faulty products can lead to lawsuits – costing the sellers a lump sum in loss.

Therefore, a federal government can use export duty as a measure of trade restriction in the worldwide commodity market. With stricter tariff regulations, export-focused overproductions can be considerably curbed.

What is the Role of Export Duty in Commodity Stabilisation Schemes?

Economic volatility has become almost simultaneous with the practices of a global free market. As a developing nation, India will look forward to specific kinds of product price stabilisations. These include:

A stable international price for certain groups of commodities, backed by the global commodity agreements at place
Stable foreign exchange export earning for specific sets of commodities
A stable price for an otherwise exportable commodity, for the domestic buyers

Therefore, a federal government can levy adequate export taxes as an affecting means of price stabilisation. This way, both exporters and domestic enterprises do not have to undergo a high-risk variability of income during a market downturn. Such a stability, in turn, can help the financial growth of the nation.

What Are the Types of Export Duty in India?

As per the rules and regulations at place under the Second Schedule of the Customs Tariff Act, export taxes are only levied on a certain set of products shipping across the border. These tariff items are noted with a specified code in order to streamline the taxation procedure.

Below, a list of different types of export duties are charged can be found:

In India, custom duty is imposed on different types of goods which are imported into the country. There are various types of customs duty which are levied on goods which are as follows:

Basic Customs Duty (BCD): Basic Customs Duty or BCD is charged on all kinds of goods imported into India. The actual amount to be chargeable on goods depends on the types of goods, the process of manufacture of these goods, and the origin from where it is imported. The rate of Basic Customs Duty ranges from 0% to 100%. Moreover, this depends on the HS code and the area of its origin. However, goods like lifesaving drugs are exempted from basic customs duty.
Special Additional Duty (SAD): Special Additional Duty is chargeable on the goods which are locally produced and where sales tax is levied. This custom duty is computed on the total assessable value of the good which is a rate of 4%.
Countervailing Duty (CVD): Countervailing duty is charged on goods that receive subsidies or tax benefits from the country, where it is manufactured. The rate of this duty varies for goods and usually ranges between 0% to 12%.
Social Welfare Surcharge (SWS): The rate of Social Welfare Surcharges is 10% and is imposed on social welfare projects to offer financial assistance to the government. This duty majorly replaces the effect of Education Cess.
Anti-Dumping Duty: Anti-dumping duty is imposed as per notification of the government with the purpose of preventing unfair trade practices like dumping which damages the market for local industry.
Compensation cess: The amount paid as compensation cess solely depends on the product. This type of custom duty is generally imposed on tobacco and goods that cause pollution like coal and cars.
Safeguard Duty: As per the notification and rates decided by the Indian Customs Department, safeguard duty is paid as compensation for damaging the market for local producers.
Integrated Goods & Services Tax (IGST): The rate of Integrated Goods & Services Tax varies from 5%, 12%, 18%, and 28%. This is generally charged on imported and local goods and has been introduced in 2017.
Customs Handling Fees: Customs handling fees are charged as 1% and are imposed where the other taxes are not applicable.

How Is Export Duty Calculated?

In order to ensure that the authorities are charging them with the adequate amount, it is always necessary for sellers to keep a track of their potential export duty expenditure themselves.

A seller will need to follow a few simple steps in order to calculate the payable export duty without any hassle. These steps has been mentioned below:

Step 1: Open the export tariff-related official website of Central Board of Indirect Taxes & Customs (CBIC).

Step 2: Find out the product from the available list. Notably, the goods can be searched by their product description or their HSN code.

This HSN or Harmonised System of Nomenclature Code had been introduced by the World Customs Organisation as a well-organised method of keeping a record of different shipped items.

Around 5,000 products are classified by this HSN number, and a seller can find out the code associated with the exportable product from an internet search.

Step 3: Note down the rate of export duty of the product

Step 4: If the chargeable amount is given on the basis of the quantity of the shipped product [For example: ₹5 / 1 kg of tea], calculate accordingly to find out the payable export duty.

However, if the rate of duty is provided in percentage [For example, raw wool’s export tariff rate is 25%], then the payable amount will be that specific percent of the product’s Free on Board or FOB price.

It should be noted that, if an export transaction is made on the basis of Cost, Insurance and Freight or CIF value, the exported product’s FOB price has to be found out in the first place to calculate its export duty.

So, it goes without saying that sellers has to know all about the meaning of import duty in this country to ensure their business proceedings can function without a hitch. As a financial tool that can benefit the government revenue earning as well as the domestic retailers of this country, this taxation policy plays a key role in deciding the financial health of India.

FAQs About Export Duty in India

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Can an excess duty paid for exported products be refunded?

If an individual has paid more amount than he or she was supposed to pay as per the given rate of duty, then this individual will need to submit an application for refund via proper channels. Notably, the application has to be made within an adequate timeframe.

Can an exporter ship a product overseas without paying the Integrated Goods and Services Tax or IGST?

A seller can claim a refund of the amount he or she has paid as IGST for exporting a product. However, if the exporter want to avoid paying this tax in the first place, he or she will need to file for a Letter of Undertaking [LUT], or an export bond.

What are the punitive measures applicable if a product has been exported improperly?

For any improperly exported product, a substantial penalty fee can be levied by the authorized entities. Additionally, the products in question will be confiscated by the judicial administration. Notably, an individual cannot claim the ownership or possession of any goods without settling his or her customs duties.

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