Importing Raw Materials to India: Customs Duty, IGST & Process Guide

Why Raw Material Imports Require Careful Planning

India imported goods worth over USD 700 billion in FY 2024-25, with raw materials and intermediate goods accounting for a significant share. For foreign-owned manufacturing subsidiaries, importing raw materials — steel, copper, chemicals, textiles, electronic components — is not a one-time event but a recurring operational necessity. Every shipment triggers a cascade of duties, taxes, and regulatory filings that directly impact your landed cost and, ultimately, your product margins.

The Indian customs framework layers multiple levies on top of each other: Basic Customs Duty (BCD), Social Welfare Surcharge (SWS), and Integrated Goods and Services Tax (IGST). The Union Budget 2025-26 rationalized tariff rates to just eight slabs (including zero), but the calculation methodology remains complex, and duty rates vary dramatically by HSN code — from 0% on critical minerals to over 70% on certain finished goods.

This guide covers the entire process: obtaining your Import Export Code (IEC), classifying goods under the HSN system, filing Bills of Entry through ICEGATE, calculating your total duty liability, and leveraging exemption schemes like Advance Authorization and EPCG to reduce costs. Every rate and threshold cited is current for FY 2026-27.

Step 1: Obtain an Import Export Code (IEC)

No entity can import goods into India without a valid IEC. This 10-digit alphanumeric code is issued by the Directorate General of Foreign Trade (DGFT) and serves as your primary identification for all import-export transactions.

IEC Registration Process

1. Prerequisites: Your Indian entity must have a valid PAN, a bank account in the company's name, and a registered business address. For a private limited company, the company PAN (not a director's personal PAN) is required.
2. Online application: Register on the DGFT portal (dgft.gov.in), fill Form ANF-2A, upload supporting documents (PAN card, cancelled cheque, address proof, Digital Signature Certificate), and pay the INR 500 government fee.
3. Processing time: The IEC is typically issued within 2-7 business days. Once issued, it is valid for the life of the entity unless cancelled or surrendered.
4. Annual update: The IEC must be updated annually between April and June on the DGFT portal. Failure to update renders the IEC inactive, blocking all import-export activity. No fee is charged if updated during the April-June window.

For a detailed walkthrough, see our guide on DGFT portal and IEC registration.

Step 2: Classify Your Goods Under the HSN System

Every imported product must be classified under the Harmonized System of Nomenclature (HSN), which determines both the applicable duty rate and any regulatory restrictions. India uses an 8-digit ITC-HS code — the first 6 digits follow the World Customs Organisation (WCO) standard, with 2 additional digits for India-specific classification.

Why Classification Matters

Incorrect HSN classification is one of the most common and costly mistakes importers make. Classifying copper wire under the wrong subheading could mean the difference between a 5% BCD rate and a 15% rate. Customs authorities regularly challenge classifications, and reclassification results in differential duty demands, interest at 15% per annum, and potential penalties under Section 114A of the Customs Act.

Common Raw Material HSN Codes and BCD Rates (FY 2025-26)

For the official Customs Tariff, refer to the Indian Customs Electronic Gateway (ICEGATE) or consult a licensed customs broker.

Step 3: Understand the Duty Structure

India's import duty is not a single levy — it is a stack of charges, each calculated on a progressively larger base. Understanding this cascade is essential for accurate landed-cost projections.

Component 1: Basic Customs Duty (BCD)

BCD is the primary tariff applied as a percentage of the Assessable Value (AV). The AV is typically the CIF (Cost, Insurance, Freight) value of the goods. Under the Union Budget 2025-26, the government rationalized BCD rates to eight slabs: 0%, 2.5%, 5%, 7.5%, 10%, 15%, 20%, and 25% — eliminating seven additional rates that previously existed for industrial goods.

Component 2: Social Welfare Surcharge (SWS)

SWS is levied at 10% of the BCD amount (not 10% of the assessable value). The Budget 2025-26 exempted SWS on 82 tariff lines that are already subject to a cess, implementing a policy of not more than one cess or surcharge per item.

Component 3: Integrated GST (IGST)

IGST is calculated on the aggregate of the Assessable Value, BCD, and SWS. The standard IGST rate for most industrial raw materials is 18%, though some goods attract 5%, 12%, or 28%. The critical advantage: IGST paid on imports can be claimed as Input Tax Credit (ITC) against your outward GST liability, effectively making it a pass-through cost for businesses.

Worked Example: Importing Organic Chemicals

In this example, the effective non-recoverable duty burden is 8.25% (BCD + SWS), not the apparent 27.7% total. This distinction is critical for costing and pricing decisions.

Step 4: Prepare Documentation for Customs Clearance

Incomplete or incorrect documentation is the leading cause of clearance delays at Indian ports. A single missing document can hold your shipment for days, incurring demurrage charges of INR 3,000-15,000 per container per day. Prepare the following documents before your goods arrive in India.

Mandatory Documents

• Commercial Invoice: From the supplier, showing the value of goods, product descriptions, quantities, unit prices, HS codes, and payment terms (CIF/FOB/CFR). Customs uses this to determine assessable value.
• Packing List: Detailed breakdown of how goods are packed — weights, dimensions, and contents of each package. Must match the commercial invoice exactly.
• Bill of Lading (sea) or Airway Bill (air): Issued by the carrier, serving as proof of ownership and allowing you to take possession upon arrival.
• Certificate of Origin: Confirms manufacturing origin. Critical if you are claiming preferential tariff rates under a Free Trade Agreement (FTA) — see our guide on India's FTA tariff benefits.
• Insurance Certificate: Required for CIF shipments to establish the insured value.
• Purchase Order / Contract: The underlying commercial agreement between buyer and seller.

Additional Documents (Depending on Goods)

• BIS Certificate: Required for goods under the Bureau of Indian Standards compulsory certification scheme (electronics, steel, chemicals, cement, etc.)
• FSSAI License: For food and food-related raw materials
• Drug Controller License: For pharmaceutical raw materials
• CPCB Authorization: For hazardous materials or e-waste components
• Phytosanitary Certificate: For plant-based raw materials

For a complete ICEGATE documentation checklist, see our guide on the Customs ICEGATE portal.

Step 5: File the Bill of Entry Through ICEGATE

The Bill of Entry (BoE) is the central legal declaration for importing goods into India. It must be filed electronically through ICEGATE (Indian Customs Electronic Gateway) — no manual filing is accepted.

Filing Timeline

The BoE should be filed within 30 days of goods arriving at the Indian port. However, ICEGATE allows filing a "prior Bill of Entry" before the vessel or aircraft arrives — this advance filing lets duty assessment and payment happen while goods are in transit, significantly reducing clearance time. A prior BoE is valid if the vessel arrives within 30 days of filing.

Filing Process

1. ICEGATE Registration: Register your company on icegate.gov.in using your IEC, PAN, and a Class 3 Digital Signature Certificate.
2. BoE Preparation: Enter shipment details — HS codes, quantities, CIF values, supplier details, port of origin, and vessel/flight information.
3. Document Upload: Upload the commercial invoice, packing list, Bill of Lading, and any regulatory certificates.
4. Duty Assessment: Customs assesses the duty based on declared values and HS codes. If the declared value is questioned, the shipment may be referred to the Directorate General of Valuation.
5. Duty Payment: Pay the assessed duty electronically through ICEGATE. Payment is through authorized banks via e-payment.
6. Examination: Depending on the risk profile, goods may be selected for physical examination or cleared directly ("green channel").
7. Out of Charge: Once examination (if any) is complete and duty is paid, Customs issues an "Out of Charge" order, and goods can be released to the importer.

Clearance Timeline

With proper documentation and advance filing, clearance typically takes 1-3 working days. For goods requiring physical examination or regulatory clearances (BIS, FSSAI), expect 5-7 working days. The Customs (Voluntary Revision of Entries Post Clearance) Regulations, 2025, effective November 2025, now allow importers to formally correct errors in a BoE even after clearance — a significant improvement from the earlier ad hoc process.

Duty Exemption and Reduction Schemes

For companies that import raw materials for manufacturing exported goods, India offers several schemes that can reduce or eliminate customs duty entirely. These schemes require advance planning and compliance commitments but deliver substantial cost savings.

Advance Authorization Scheme

This is the most widely used exemption scheme. Under Advance Authorization, importers receive duty-free permits to purchase raw materials for export production, with full exemption from BCD, SWS, and IGST. Key requirements include a minimum two years of export performance, at least 15% value addition in exported goods, and the export obligation must be fulfilled within 18 months of authorization (extendable). The DGFT has extended the Export Obligation Period for authorizations expiring between March 2026 and May 2026, automatically extending them to August 2026.

Duty-Free Import Authorisation (DFIA)

DFIA is similar to Advance Authorization but is issued after export completion, making it suitable for companies that want to confirm export performance before claiming duty benefits. Under DFIA, only BCD is exempted — IGST and compensation cess are not exempted. DFIA licences are also transferable, creating a secondary market value.

Export Promotion Capital Goods (EPCG) Scheme

While EPCG primarily covers capital goods (machinery, equipment), it is relevant for companies setting up manufacturing facilities. The scheme allows import of capital goods at a concessional BCD of 5% (with no additional duties), subject to an export obligation of six times the duty saved, to be fulfilled over six years.

Free Trade Agreement (FTA) Concessions

If your raw materials originate in a country with which India has an FTA or preferential trade agreement, you may qualify for reduced BCD rates. India has active agreements with ASEAN, Japan, South Korea, Australia (ECTA), and several others. Claiming FTA rates requires a valid Certificate of Origin from the exporting country. For details on specific FTAs, see our India FTA tracker.

Common Pitfalls Foreign Companies Face

Incorrect HS Code Classification

Misclassification leads to under-payment or over-payment of duty. Under-payment triggers demand notices with 15% annual interest, and potential penalties of 25-100% of the short-paid duty under Section 114A. Over-payment means you paid excess duty that must be recovered through a refund application — a process that can take 6-12 months.

Undervaluation Challenges

Customs authorities scrutinize transactions between related parties (e.g., a foreign parent supplying raw materials to its Indian subsidiary). If the transaction value is below the prevailing market price, Customs may reject the declared value and assess duty on a higher "transaction value of identical goods" or "deductive value." Maintaining transfer pricing documentation that covers customs valuation is essential.

Missing BIS Certification

Over 300 product categories require BIS certification before importation. Shipping goods without BIS certification results in the shipment being held at port, with demurrage accumulating daily. The BIS certification process itself takes 2-4 months — plan well in advance of your first shipment.

Ignoring Anti-Dumping Duties

India actively imposes anti-dumping duties on goods imported at below-market prices — particularly on steel, chemicals, and textiles from China and Southeast Asia. These duties can be substantial (often 20-60% of the CIF value) and are levied in addition to BCD, SWS, and IGST. Check the DGTR (Directorate General of Trade Remedies) website for current anti-dumping notifications.

Import Financing and Payment Considerations

Foreign subsidiaries importing raw materials must also navigate FEMA regulations on foreign exchange transactions. Key considerations include the following: payment must be made in freely convertible currency (USD, EUR, GBP, JPY) through authorized dealer banks; advance payments for imports exceeding USD 200,000 require a bank guarantee from the supplier's bank; import payments must be completed within 6 months of shipment date (extendable with RBI permission); and Letters of Credit (LC) from Indian banks incur charges of 0.5-2% of the LC value plus processing fees.

For companies with frequent imports, establishing a credit line with the supplier and settling through periodic wire transfers is more cost-effective than individual LCs. Ensure each remittance is backed by a Bill of Entry and supporting customs documentation for FEMA compliance.

Bonded Warehousing: Deferring Duty Payment

Companies that import raw materials in bulk but consume them gradually should consider India's bonded warehousing facility. Under the Customs Act, goods can be stored in a bonded warehouse without paying customs duty at the time of import. Duty becomes payable only when goods are removed from the warehouse for domestic consumption — effectively providing an interest-free credit period on customs duty.

This is particularly valuable for companies with seasonal production cycles or those managing working capital carefully. The warehousing period is initially 1 year for general goods (extendable), and goods can be partially cleared from the warehouse as needed. Bonded manufacturing facilities, approved under Section 65 of the Customs Act, allow companies to import raw materials, manufacture finished goods within the bonded premises, and export the finished products without ever paying import duty — combining the benefits of bonded warehousing with export-oriented production.

Key Takeaways

• Get your IEC first — it costs only INR 500 and takes 2-7 days, but without it, no import activity is possible. Update it annually during the April-June window to avoid deactivation.
• HSN classification drives everything — your BCD rate, IGST rate, regulatory requirements, and FTA eligibility all depend on the HS code. Invest in correct classification upfront rather than facing reclassification demands later.
• IGST is recoverable, BCD is not — for landed-cost calculations, focus on the BCD + SWS component (the non-recoverable portion). IGST is offset through Input Tax Credit.
• File prior Bills of Entry — advance filing through ICEGATE while goods are in transit can reduce clearance time from 5-7 days to 1-3 days, directly reducing demurrage costs.
• Leverage duty exemption schemes — if you export finished goods, Advance Authorization can eliminate customs duty entirely on imported raw materials, saving 5-25% on material costs.

For assistance with customs duty planning and import compliance, explore our FEMA and RBI compliance services. For a broader view of setting up manufacturing operations in India, see our guide to importing manufacturing equipment.