Businesses planning to set up a trading company, or start importing or exporting from India, must understand the stages and stakeholders involved in the process, as well as the regulatory framework and documentation required.
In India, the imports and exports are regulated by the Foreign Trade (Development and Regulation) Act, 1992, which empowers the federal government to make provisions for development and regulation of foreign trade. The current provisions relating to exports and imports in India are available under the Foreign Trade Policy, 2015-20.
Import procedures
Typically, the procedure for import and export activities involves ensuring licensing and compliance before the shipping of goods, arranging for transport and warehousing after the unloading of goods, and getting customs clearance as well as paying taxes before the release of goods. Below, we outline the steps involved in the importing of goods.
1. Obtain IEC
Prior to importing from India, every business must first obtain an Import Export Code (IEC) number from the regional joint DGFT. The IEC is a pan-based registration of traders with lifetime validity and is required for clearing customs, sending shipments, as well as for sending or receiving money in foreign currency.
The process to obtain the IEC registration takes about 10-15 days.
2. Ensure legal compliance under different trade laws
Once an IEC is allotted, businesses may import goods that are compliant with Section 11 of the Customs Act (1962), Foreign Trade (Development & Regulation) Act (1992), and the Foreign Trade Policy, 2015-20.
However, certain items – restricted, canalized, or prohibited, as declared and notified by the government – require additional permits and licenses from the DGFT and the federal government.
3. Procure import licenses
To determine whether a license is needed to import a particular commercial product or service, an importer must first classify the item by identifying its Indian Trading Clarification based on a Harmonized System of Coding or ITC (HS) classification.
ITC (HS) is India’s chief method of classifying items for trade and import-export operations. The ITC-HS code, issued by the DGFT, is an 8-digit alphanumeric code representing a certain class or category of goods, which allows the importer to follow regulations concerned with those goods.
An import license may be either a general license or specific license. Under a general license, goods can be imported from any country, whereas a specific or individual license authorizes import only from specific countries.
Import licenses are used in import clearance, renewable, and typically valid for 24 months for capital goods or 18 months for raw materials components, consumables, and spare parts.
4. File Bill of Entry and other documents to complete customs clearing formalities
After obtaining import licenses, importers are required to furnish import declaration in the prescribed Bill of Entry along with permanent account number (PAN) based Business Identification Number (BIN), as per Section 46 of the Customs Act (1962).
A Bill of Entry gives information on the exact nature, precise quantity, and value of goods that have landed or entered inwards in the country.
If the goods are cleared through the Electronic Data Interchange (EDI) system, no formal Bill of Entry is filed as it is generated in the computer system. However, the importer must file a cargo declaration after prescribing particulars required for processing of the entry for customs clearance.
If the Bill of Entry is filed without using the EDI system, the importer is required to submit supporting documents that include certificate of origin, certificate of inspection, bill of exchange, commercial invoice cum packing list, among others.
Once the goods are shipped, the customs officials examine and assess the information furnished in the bill of entry and match it with the imported items. If there are no irregularities, the officials issue a ‘pass out order’ that allows the imported goods to be replaced from the customs.