Tips for exporters
- There are no trade barriers to exports to India except for restrictions on items appearing in a negative list.
- Customs duties at specific percentage ad valorem, specific amount per unit of quantity or both are levied according to the classification of goods in the Customs Tariff Act.
- Duty drawback is available for imported raw materials used in products exported.
- Imports of duty-free materials required for export production may also be permitted under certain conditions.
- Duty is waived or a concessional duty rate is permitted for export into India of capital goods under the Export Promotion Capital Goods (EPCG) Scheme.
- Exports into India from some countries are free of duty or attract duty at reduced rates.
- Customs bonded warehouses are available at selected entry points for duty-free import of goods for manufacturing exclusively for export purpose.
Control over the import of goods into India is exercised by the Import Trade Control Organization, which functions under the ministry of Commerce. This organization is supervised by the Director General of Foreign Trade stationed at New Delhi, who is assisted by Additional and Joint Directors General and by other licensing authorities at various centers. Current import policy, valid from April 1992 to March 1997, is embodied in the Export and Import Policy book out by the Director General of Foreign Trade. Some salient features of the import restrictions are as follows.
1. Goods may be imported freely without any restriction unless regulated on grounds of public policy or listed in the negative list of imports. The negative lists comprise prohibited, restrictive list of imports. The negative lists comprise prohibited, restricted and canalized items :
a. The importing of prohibited items is banned;
b. The importing of restricted items is permitted under specific license, or in accordance with a public notice conveying a general schedule;
c. Canalized items can be imported only through designated public sector agencies, such as the Indian Oil Corporation and the State Trading Corporation. However, the central government may grant licenses to others to import any canalized goods.
The negative list of import is under constant review; it is important to check the current list at the time of import.
2. The import of consumer goods and durables continues to be restricted (with exceptions for a Specific items).
3. The import of capital goods machinery has been liberalized and is generally allowed without license. Secondhand capital goods are also allowed, subject to certain conditions.
4. Special licensing schemes permit the import of capital goods required for export production either duty-free import of inputs required for export production.
5. The import of gold and specified items of consumer goods is also permissible under special import licenses issued to certain categories of exporters on the basis of either the net foreign exchange earning or the FOB value of physical exports.
Customs duties are levied at specific percentage ad valorem, specific amount per unit of quantity or both, depending on the classification of the imported goods in the Customs Tariff Act.
The classification of goods and the applicable rates for the levy of import duties are furnished in the Customs Tariff Act. Duty rates may change according to the country of origin and the type of product. For example, complete exemption or rate concessions are allowed on the import of specified items from some neighboring and developing countries such as Bangladesh, Bhutan, Egypt, Myanamar, Nepal, and Sri Lanka.
Schedule I to the Imports (Control) Order 1955, commonly known as ITC Schedule, contains several thousand classifications for imports.
Three types of duty are generally applicable to imports into India : basic, special and additional (or Countervailing) duties. The special customs duty is in force until March 31, 1999 at a flat rate of 2 percent on the value of all imported goods except those subject to a zero rate of duty. The counter vailing duty is equal to the excise duty on similar articles produced or manufactured in India, and it is eligible for an offset against excise duty liability if the imported goods are used in the manufacture of other goods. A fourth type of duty, referred to as protective duty, may be imposed to counter the effect of a bountry or subsidy given by an exporting country.
Basic duties generally range from 0 to 50 percent. Lower duty rates are generally applicable to raw materials and intermediate goods as opposed to finished products. Duty drawback is available for imported raw materials used in products exported. General machinery and project imports are subject to duty at the effective rate of 39.7 percent (including 12.7 percent on account of countervaling duty, which may be eligible for offset), although certain specific projects benefit from lower rates. Effective duty is sometimes lowered due to exemptions or concessions provided through notifications. Import duties have been considerably lowered, and further reductions may take place over the next few years.
Duty is waived or a concessinal duty rate is permitted for export into India of capital goods under the Export promotion Capital Goods (EPCG) Scheme.
Antidumping duty provisions have been invoked in some cases. Indications are that they may be applied more actively where availability of imports in India at lower price that that prevailing in the exporting country is likely to cause significant harm to the domestic industry.
The rules and procedures for imports are contained in the Handbook of Procedures - Imports and Export Promotion, which is issued from time to time by the Director General of Foreign Trade. Import licenses are issued in duplicate and market for customs and exchange control purposes, respectively. It is important that the correct quantity, description and value of the goods be properly recorded on the license and exporter's invoices, because failure to do so could lead to protracted delays in the clearance of goods and litigation. Every invoice must be signed. Invoices should normally be prepared on FOB terms, and a freight note should be attached, since in the absence of documentary evidence of the amount payable for freight and insurance, Indian customs adds 10 percent to the invoice price in arriving at the value for imposing import duty. Where an import license is required, no letter of credit may be opened or remittance made to a foreign country for imports unless the importer is in possession of a valid import license marked for exchange control purposes.
Customs and storage
The quality of customs and storage facilities and the security of goods are modest to adequate, varying from port to port.
Customs bonded warehouses are available at selected ports of entry, e.g., Banglore, Mumbai, Calcutta, Cochin, Delhi, Kandla, Chennai, and Vishakhapatnam, for duty-free import of raw material and components for stock and subsequent sale to actual users.
To facilitate access to imported inputs for exporters, the government has allowed private operators to set up bonded warehouses subject to certain conditions. However, there are no restrictions on the type of goods to be warehoused.
Port of entry and inland transport
Exporters are free to choose a port of entry. Availability of inland transport is not a problem, but the timing of movement maybe restricted in the case of very bulky items.
The Duty Exemption Scheme enables imports of duty-free raw materials, components, intermediates, consumables, parts, spares, and packing materials required for purposes of export production. Licenses issued for this purpose require adherence to value-added and input-output norms and fulfillment of export obligations. Units set up in export-processing zones or as 100 percent export-oriented units are also required to comply with specific value-added norms.
Because it is generally advisable to export on an FOB basis, it is not necessary to employ a local agent. However, where responsibility for port clearance rests with the exporter, it is useful to engage the services of a local customs clearing house. Business reasons may also favor the appointment of a local agent or distributor(s) for better market penetration, scale economies or after-sale servicing.
Under the tax treaties entered into with various countries, there are tow types of agents: independent and dependent. A dependent agent is usually defined as an agent who works exclusively for a nonresident company and therefore creates a permanent taxable entity for the organization in India. An independent agent is defined as one who is not a dependent agent. It is advisable to check the applicable tax treaty for the exact definition to avoid being taxes in India. For nontreaty countries, the business connection as defined by the Income Tax Act holds.
Appointment of a sales agent is permitted under Indian law. However, in the case of contracts for the sale of defense equipment where the government is the monopoly buyer, the appointment of a local sales agent is currently not permitted.
A liaison office can be set up to promote and disseminate information about the company and its products. The office can carry out sales promotion, market intelligence, etc., but cannot carry out any commercial activity. The liaison office cannot sign a contact but can act as a postal box between the parent company and the local purchasers.
Following liberalization allowing branches of foreign trading and manufacturing companies, some such companies have set up branches in India to facilitate import or export or to provide technical or maintenance services relating to their equipment or other products.
Permission from the Foreign Investment Promotion Board (FIPB) is required to set up a sales subsidiary in India. The FIPB considers proposals on a case-by-case basis and considers the proposal as a whole.
Sources of information
Further assistance may be obtained from the commercial division of any Indian embassy or consulate. For applicable customs tariff rates, see the current years Customs Tariff Guide, taking care to check for any notifications modifying the applicable duty rate.