29 June 2018
Import/Export Procedures of India
India has been a member of the World Trade Organisation (WTO) since 1995 and has worked towards a generally more open trade regime, with elimination of quantitative restrictions, simplification of import licence application and reduction of import tariffs since the country adopted the big bang liberalisation in 1991. In 2001, the Indian government abolished the system of special import licences while retaining a negative import list. The simple average MFN applied tariff rate of India was 13.4% in 2016, according to the WTO.
India has concluded Free Trade Agreements (FTA), Preferential Trade Agreements (PTA) and Economic Cooperation Agreements (ECA) with many countries and regions, including Afghanistan, Bhutan, Chile, Japan, Ecuador, Korea, Malaysia, Nepal, Singapore, Sri Lanka, Africa, the ASEAN and the MERCOSUR (Brazil, Argentina, Uruguay and Paraguay). It is also a member of the Agreement of South Asia Free Trade Area (SAFTA), and the Asia Pacific Trade Agreement (APTA).
Currently, India is still negotiating FTA, PTA or ECA with Australia, Canada, Egypt, Indonesia, Israel, Mauritius, New Zealand, Peru, Thailand, the Bay of Bengal Initiative, the Gulf Cooperation Council (GCC), the European Free Trade Association (EFTA), the Eurasian Economic Union (EEU), the European Union (EU), and the South African Customs Union (SACU). India has also participated in the negotiation of the Regional Comprehensive Economic Partnership (RCEP, which comprises the 10 members of ASEAN and six countries with which ASEAN has secured individual FTA, namely Australia, China, India, Japan, Korea, and New Zealand). On the other hand, many countries are pitching FTA discussions with India, including China, the US, and the five Nordic countries of Denmark, Finland, Iceland, Norway and Sweden.
Apart from expanding the scope of India-ASEAN Trade in Goods Agreement in November 2014, just months after the Modi government was sworn in, however, India has not signed any FTA, PTA or ECA in the past three years. While reviewing existing trade agreements, the Indian government has largely adopted a conservative policy on some industrial products and most farm items, thereby keeping a large number of these products in the negative list of those trade agreements and shielding them from further import tariff reductions. Therefore, an articulated negative list will clearly bring out the intentions of the Indian government as to what is precisely outside the tax concession net.
As part of the efforts to promote manufacturing in India and revive its consumer electronics hardware sector, the Modi government introduced the Phased Manufacturing Programme (PMP) in August 2015 to promote local manufacturing to subject certain imported parts and components to import duties over a number of years. Consistent with the thrust to accelerate the Make in India initiative, the Basic Customs Duty (BCD) rate on mobile phones and parts, including charger, headset, battery and USB cable, was increased from 10% to 15% in December 2017. Compared to zero-rated BCD before July 2017, the BCD rate for mobile phones was raised further to 20% in the government’s Budget in February 2018, in order that a sufficiently large import duty differential would exist to incentivize domestic production of finished products as well as related parts and components. In addition, the Indian government also decided to impose BCD on electronic parts and components such as populated PCBs, camera modules and connectors used in smartphone production.
In India, the Ministry of Commerce and Industry (MOCI) is the largest and most important government agency concerned with the promotion and regulation of foreign trade. Under MOCI, there are the Department of Commerce (DOC) and the Department of Industrial Policy & Promotion (DIPP). In India, imports and exports are regulated by the Foreign Trade (Development and Regulation) Act (1992) along with the India Customs Act (1962).
Nonetheless, the Directorate General of Foreign Trade (DGFT) is the most active body dealing with the trading community in virtually all aspects of the import and export of goods in India. DGFT has been run as a unit under MOCI since the country adopted the big bang liberalisation in 1991. With more than two decades of economic and trade reforms, the role of DGFT has evolved from controlling to facilitating exports and imports in line with the general economic policy framework of the country.
While direct taxation like income tax is administered by the Central Board of Direct Taxes (CBDT) under the Ministry of Finance (MOF) of the central government in accordance with Income Tax Act 1961, taxation of import and export transactions is regulated by the Central Board of Indirect Taxes and Customs (CBIC) under the Department of Revenue of MOF. CBIC has played an active role in the drafting of GST laws and procedures, their administration as well as that for the entire customs and excise duty regime, including duties collection.
Import and Export Requirements
Hong Kong companies intending to set up a presence in India and import from the country should take note of the changes in India’s import regime as well as the import procedures after the GST reform in July 2017.
- Import of goods into India in the wake of the GST reform continues to be governed by the Customs rules, along with various GST Acts. While GST did not bring about any drastic change in taxes on imports, both Countervailing Duty (CVD) and Special Antidumping Duty (SAD) have been replaced with or succeeded by the Integrated GST (IGST), and the BCD is kept intact to be the main import levy under the control of the central government.
- In addition to BCD and IGST, there are Customs Cess and Compensation Cess, the latter of which is applied to specified luxury goods including tobacco products with the tax rate varying between 1% and 15%.
- For Indian importers, BCD and Customs Cess paid for the imports are not creditable as Input Tax Credit (ITC) to offset against output GST liability in arriving at overall GST. FAQs on GST prepared by CBIC can be found here.
Procedures to Import Products in India
- After setting up a business presence in India as discussed in Section 2, apply to DGFT for a mandatory Importer and Exporter Code (IEC) number, a 10-digit code which has to be indicated in the import documents to be filed with the Customs (CBIC) for import clearance.
- Submit the online application in ANF2A format (i.e. the Aayaat Niryaat Form) with digital signature plus all requisite documents, and pay the applicable fee.
- DGFT will issue the IEC number against the Permanent Account Number (PAN) of the applicant, before the latter can be allowed to engage in export and import (EXIM) activities. A copy of the approved IEC number issued shall be endorsed to the concerned bank, and this is ordinarily done via email. Unless cancelled by the competent authority, the IEC number will have permanent validity.
- Every item of goods imported must be in conformity with Section 11 of the Customs Act (1962), Foreign Trade (Development & Regulation) Act (1992), and the prevailing Foreign Trade Policy. While most goods can be freely imported into India, there are certain prohibited, canalized and licensed (restricted) items and importation of them will require special DGFT permission.
- India adopts an EIXIM classification system called Indian Trading Clarification (Harmonized System) Code or ITC (HS) Code, which consists of two schedules. The first one, ITC (HS) Import Schedule I, pertains to import rules and guidelines that are divided into chapters outlining in detail the classification of imported goods and related regulations. Indian Customs uses an 8-digit ITC (HS) Code to suit the national trade requirement.
- To deal with occasions on which certain items could be on the prohibited and restricted lists, as found on the Schedule I of ITC (HS) Code, the importer should apply for an import licence or run the risk of the import being declared unauthorized, as the goods can be confiscated or refused entry into the country.
- Import licences, which are used in import clearance, are renewable and typically valid for 24 months for capital goods and 18 months for raw materials components, consumables, and spare parts.
- After obtaining the IEC number and import licence, identify and declare the sources or origins of imported items, while following the customs clearance formalities.
- File a Bill of Entry with Corporate Identity Number (CIN) under Section 46 of the Customs Act (1962), providing the certification, description as well as value of the imported goods. With Electronic Data Interchange (EDI) systems, the importer is basically required to file a cargo declaration after prescribing particulars required for processing of the entry for customs clearance.
- Determine the import duty rate for clearance on the date the imported goods is removed from the warehouse. Import duties are outlined in the First Schedule of the Customs Tariff Act (1975), which is amended with the related notifications in respect of the changes in BCD or otherwise. Detailed information on India’s import tariffs released by CBIC can be found here.
- With the GST reform, additional duties of customs duties have been replaced by IGST with a few exceptions. The actual rate applicable to an import item will depend on its classification as specified in Schedules notified under Section 5 of the IGST Act (2017).
- Currently, GST rates are kept in a four-slab structure of 5%, 12%, 18% and 28%, with certain items granted exemption or zero-rated, as discussed in Section 5. For imported items, the corresponding IGST rates will be adopted on top of BCD.
Tax Applied to Levied by Integrated Goods and Services Tax (IGST)
- Import of goods and services
- Supplies to units or developers of SEZ
- Inter-state supply of goods and services
Central government Central Goods and Services Tax (IGST) Intra-state supply of goods and services Central government State Goods and Services Tax (IGST) Intra-state supply of goods and services State governments
- Compensation Cess may also be applicable in regards to some designated products (which surfaced as part of the coordinated efforts to compensate the state governments for the revenue loss due to GST implementation).
- File requisite documents with DGFT and submit import report or manifest, and receive permission to import goods.
- Further information on foreign trade procedures by DGFT can be found here.
As discussed in the part above on imports, a company intending to engage in export activities also need to apply to DGFT for an Importer and Exporter Code (IEC) number, which will be checked during customs clearance (CBIC) in each of the future export activities.
After obtaining the IEC number (usually along with the import licence), the company needs to register with an Export Promotion Council (EPC) to obtain the mandatory Registration Cum Membership Certificate (RCMC). The RCMC is instrumental to avail trade benefits and concessions for the exporter under India’s Foreign Trade Policy. There are more than two dozen EPC in India and further information can be found here.
- The exporter is required to obtain RCMC from the EPC dealing with the product of the company’s main line of business.
- In case an export product is not covered by any EPC, there is an option to obtain RCMC from the Federation of Indian Export Organisation (FIEO).
- RCMC shall be deemed to be valid from 1 April of the licensing year in which it was issued and shall be valid for five years ending 31 March of the last licensing year, unless otherwise specified.
In addition, an exporting company should register with the Indian Chamber of Commerce (ICC), which issues the Non-Preferential Certificates of Origin to exporters to certify that the exported goods are originated in India.
Procedures to Export Products from India
- As said above, the Indian Trading Clarification (Harmonized System) Codes consists of two schedules. The second one, ITC (HS) Import Schedule II, pertains to export rules and guidelines that are divided into chapters outlining in detail the classification of and related regulations for the export items.
- Following the acquisition of IEC number and registration with EPC, FIEO and ICC, an exporter may also check if an export licence is required in respect of the products the company is carrying, and an export licence application shall be sent to DGFT.
- Ensure all regulatory compliances are met, such as air and maritime insurance for the exported products, adequate warehousing, and quality control resources.
Further information on foreign trade procedures by DGFT can be found here. The Indian Trade Portal also carries a comprehensive list on how to export, spanning from the establishment of an export entity to covering of export risk.
Product Standards and Labelling Requirements
The Bureau of Indian Standards operates a product certification scheme as per the Bureau of Indian Standards Act (1986), by which it grants licences to manufacturers covering practically every industrial discipline spanning textiles to electronics. The certification allows the licensees to use the popular ISI Mark, a qualify market which confirms that the product has met the Indian Standard.
All imported consumer goods intended for direct retail sale in India must identify the importing agents and product labels must be distinctly and clearly written or printed in English or Hindu as to the following:
- Common name of the product packed
- Net quantity in metric measurement
- Month and year the product was made, packed or imported
- The maximum retail price (MRP) at which the product in packaged form will be sold to consumers
- If the products are food, the labelling should include names of ingredients used in the product in descending order of their composition by weight or volume; net weight or volume of contents; and any distinctive batch or code number; and the month and year by which the product is best consumed
Regarding export goods, they should be labelled, packaged and packed strictly as per the buyer’s specific instructions. Marking in the specified language including address, package number, port and place of destination, weight, handling instructions provides identification and information of cargo packed. Undoubtedly, good packing helps easy handling and reduces shipping costs, also ensuring safety and standard of the cargo.
- Regulatory Environment
- Establishing a Presence
- Intellectual Property Protection
- Staff Recruitment
- Tax Considerations
- Import/Export Procedures
- Further Information