Ask three people in the same company what a consignment costs to land and you will get three answers. Purchasing quotes the supplier's invoice. Logistics adds the freight. Finance adds the duty cheque. None of the three is the landed cost, and the gap between them is where import margins quietly disappear.
We look at a lot of import cost sheets. The same three errors appear in most of them, and each one points the answer in a different direction. This is the correct build.
Step 1: Get to the Assessable Value
Customs does not calculate duty on your invoice. It calculates duty on the assessable value, which is the transaction value adjusted under the customs valuation rules.
The base build is:
`` Transaction value (price actually paid or payable) + Freight to the place of importation + Insurance = Assessable Value (CIF) ``
Where freight is not ascertainable, a prescribed percentage of FOB applies; where insurance is not ascertainable, a prescribed percentage applies as well.
Error one: the phantom landing charge. A great many cost sheets in circulation still add 1% of CIF as "landing charges". That addition was removed from the valuation rules years ago. If your template still carries it, you are overstating your assessable value - and therefore your duty - on every single line. Check your sheet today.
What else goes into value is covered properly in our customs valuation guide, but the additions that most often get missed are royalties and licence fees that are a condition of sale, and the value of materials supplied free to the seller. These are not optional; leaving them out is a valuation exposure, not a saving.
Error two: the exchange rate. The assessable value is converted at the exchange rate notified by CBIC, which is fixed periodically - not the rate your bank gives you on the remittance. Two consequences follow. First, your duty is calculated on a rate you did not transact at. Second, the difference between the notified rate and your actual remittance rate is a genuine cost that never appears anywhere in the duty computation. Capture it separately, or your landed cost is understated on every consignment.
Step 2: Build the Duty Stack, in Order
The duty stack is sequential, and the order matters because later levies are calculated on earlier ones.
| # | Levy | Calculated on |
|---|---|---|
| 1 | Basic Customs Duty (BCD) | Assessable value |
| 2 | Agriculture Infrastructure and Development Cess (where applicable) | Assessable value |
| 3 | Anti-dumping / countervailing / safeguard duty (where applicable) | Assessable value |
| 4 | Social Welfare Surcharge | A percentage of the customs duty, with sector-specific exemptions |
| 5 | IGST | Assessable value plus all of the above |
| 6 | Compensation cess (where applicable) | Same base as IGST |
The two lines that blow up cost models are the ones marked "where applicable". An anti-dumping duty can exceed the value of the goods themselves, and it attaches to a product-and-country combination that a purchasing team switching suppliers will not think to check. Screen for it before the order, not after.
Step 3: Separate Cost from Cash - The Line Most Sheets Miss
Error three, and the biggest. Not everything you pay at customs is a cost.
| Levy | Nature |
|---|---|
| BCD | True cost - goes into your product cost |
| Social Welfare Surcharge | True cost |
| AIDC | True cost |
| Anti-dumping / safeguard duty | True cost |
| IGST | Working capital - recoverable as input tax credit |
| Compensation cess | Recoverable against compensation cess liability |
IGST is usually the single largest number on the duty challan and it is usually not a cost at all. It is cash out today, recovered as credit later. Treating it as product cost overstates your landed cost dramatically and will lead you to price yourself out of business or reject viable sourcing.
But - and this is the part a purely P&L view misses - it is not free either. It is cash tied up for the credit cycle, and it should be costed at your cost of funds and shown as a working-capital line, not as product cost. Two different numbers, both true, used for two different decisions:
- Landed cost for pricing and margin includes the non-creditable duties only.
- Cash outlay per consignment includes everything, and drives your funding requirement.
Conflating them is how businesses end up with healthy paper margins and no cash.
A Full Worked Example
A consignment at FOB USD 100,000, ocean freight USD 4,000, insurance USD 1,125, at a notified rate of ₹88 to the dollar, BCD at 10%, SWS at 10% of BCD, IGST at 18%:
| Line | Amount (₹) |
|---|---|
| CIF value (USD 105,125 at ₹88) - Assessable Value | 92,51,000 |
| Basic Customs Duty @ 10% | 9,25,100 |
| Social Welfare Surcharge @ 10% of BCD | 92,510 |
| IGST base (AV + BCD + SWS) | 1,02,68,610 |
| IGST @ 18% | 18,48,350 |
| Total paid at customs | 28,65,960 |
| Of which non-creditable (BCD + SWS) - true cost | 10,17,610 |
| Of which creditable (IGST) - working capital | 18,48,350 |
Read those last two lines again. ₹28.66 lakh leaves the bank. Only ₹10.18 lakh is cost. A cost sheet that books the full ₹28.66 lakh into product cost overstates the landed cost by roughly 18%, on a consignment where the actual duty burden is under 11% of value.
That single error has caused more bad sourcing decisions than any classification dispute we have ever handled.
Want your import cost sheet checked? Send us one live consignment and we will rebuild it line by line - including the duties you should not be paying. Book a free landed cost review or message us on WhatsApp.
Step 4: The Costs After Clearance
The duty stack is the visible part. The rest of the landed cost is scattered across four different ledgers and rarely gets assembled:
- Ocean or air freight and insurance, if not already in the CIF.
- Terminal handling and port charges at destination.
- CFS or ICD handling, including any deconsolidation.
- Customs broker and documentation charges.
- Transport from port to your warehouse.
- Demurrage and detention - the line most companies treat as an exception when it is in fact a running average. Take your last twelve months, divide by consignments, and put the number in the sheet.
- Bank charges - letter of credit, remittance, document handling.
- Forex cost - the spread between the notified rate and your actual remittance rate, plus any hedging cost.
- Testing, inspection and labelling, including Legal Metrology and PGA-related costs.
- Interest on duty funded between payment and recovery or sale.
For a typical container of manufactured goods, these lines together frequently run to several percent of value - comparable in size to the BCD itself, and far more controllable.
Step 5: Use It to Actually Reduce Cost
Once the sheet is honest, it becomes a tool rather than a record. The questions it lets you answer:
Is our classification optimal? A one-digit difference in the HS code can change the BCD rate materially. On a recurring import, that is an annual number worth the review.
Is there an FTA rate available? If your supplier's country has an agreement with India, the preferential rate may be substantially lower - subject to being able to substantiate origin under CAROTAR.
Is there a notification we are not claiming? Conditional concessions under the IGCR route are commonly available and commonly unclaimed.
Should we defer the duty? If the IGST and BCD outflow is straining working capital, duty deferral structures address exactly that.
Is demurrage a cost or a symptom? If it is a running average rather than an exception, the fix is upstream in documentation and PGA readiness.
People Also Ask
What is assessable value in customs?
The value on which customs duty is calculated - the transaction value adjusted under the valuation rules, comprising the price paid or payable plus freight to the place of importation and insurance.
Are landing charges still added to assessable value?
No. The 1% landing charge addition was removed from the valuation rules some years ago, but a large number of import cost sheet templates still carry it, overstating duty on every line.
Is IGST on imports a cost?
Generally no. IGST paid at import is available as input tax credit for a registered business, so it is a working-capital item rather than a product cost. It should still be costed at your cost of funds, but it must not be booked into landed cost for pricing.
Which import duties are not recoverable?
Basic Customs Duty, Social Welfare Surcharge, AIDC, and anti-dumping, countervailing or safeguard duties are all true costs with no credit available. These are the numbers that belong in your product cost.
What exchange rate does customs use?
The rate notified by CBIC, which is fixed periodically - not your bank's remittance rate. The difference between the two is a real cost that should be captured separately in your landed cost sheet.
What is Social Welfare Surcharge calculated on?
It is a percentage of the customs duty payable, not of the assessable value, with exemptions available for specified goods.
Why does my landed cost differ from my supplier's quote?
Because the quote is the transaction value only. Freight, insurance, the full duty stack, port and handling charges, broker fees, inland transport, bank and forex costs, and any demurrage all sit on top - and several of them are only visible after the fact unless you build them into the sheet.
How often should the cost sheet be reviewed?
At least annually for classification and available concessions, and immediately whenever you change product, supplier or country of origin - because duty rates, FTA eligibility and anti-dumping exposure are all tied to that combination.
Final Checklist
Take your current cost sheet and check these seven things:
- The landing charge line has been removed.
- Freight and insurance are on the correct basis, and the CBIC notified rate is used for conversion.
- Royalties and free-issue materials are included in value where required.
- Anti-dumping and safeguard exposure has been screened for this product and country.
- IGST is shown as working capital, not product cost, with a separate cost-of-funds charge.
- Demurrage is a running average, not an exception line.
- Forex spread between notified rate and remittance rate is captured.
Seven lines. In our experience, most sheets fail on at least three of them - and each failure moves the answer in a different direction.
Want a proper landed cost model built for your product lines, with the duty optimisation identified alongside it? Book a free consultation or start with a duty optimisation review.
