Excise Duty vs Customs Duty in India: An MSME's Guide After GST
Ask ten small business owners what "excise duty" means today and you'll get ten answers, many of them from before 2017. GST changed the indirect-tax landscape, but it didn't abolish every duty. For MSMEs that import raw materials or begin exporting, knowing which duty applies, and which you can recover, directly affects your margins.
This explainer sets out what each duty is, where it still applies, and how the numbers actually work.
1. The big picture: what GST replaced and what it didn't
When GST arrived in July 2017, it absorbed a long list of central and state taxes: central excise on most goods, service tax, VAT, CST, entry tax and others.
What survived:
| Levy | Status after GST | Why it matters to MSMEs |
| Central excise duty | Survives on a narrow list of goods | Mostly irrelevant unless you deal in those goods |
| Basic customs duty (BCD) | Fully in force on imports | A real, non-recoverable cost on imported inputs |
| IGST on imports | Replaced CVD/SAD | Recoverable as input tax credit |
| Social Welfare Surcharge (SWS) | In force on imports | Adds to landed cost |
2. What is excise duty today?
Excise duty is a tax on the manufacture or production of goods within India. Before GST it applied to almost all manufactured goods. Today, central excise mainly applies to:
- Petroleum products: crude oil, petrol, high-speed diesel, natural gas and aviation turbine fuel
- Tobacco and tobacco products
Alcohol for human consumption sits outside GST too, but it's taxed by the states through state excise.
"Excisable goods" therefore now means this short list of goods on which central excise is still charged.
What it means for an MSME: if you don't make or deal in these goods, you won't register for or pay central excise. You'll still feel it indirectly, because excise on diesel and petrol feeds into your fuel and freight costs, and since these fuels sit outside GST, that tax isn't creditable.
3. What is customs duty?
Customs duty is levied on goods imported into (and a few goods exported out of) India, under the Customs Act, 1962, with rates set in the Customs Tariff Act, 1975.
On a typical import, an MSME pays:
| Component | What it is | Creditable? |
| Basic Customs Duty (BCD) | The core import duty; rate depends on the product's tariff classification | No: it becomes a cost |
| Social Welfare Surcharge (SWS) | Usually 10% of BCD (some goods exempt) | No |
| IGST | Charged on (assessable value + BCD + SWS) at the product's GST rate | Yes: claimable as input tax credit |
| Other levies (where notified) | e.g. AIDC, anti-dumping or safeguard duty on specific goods | Generally no |
4. A worked example
An MSME in Coimbatore imports machine components with an assessable value of ₹10,00,000. Assume (for illustration only) BCD 10%, SWS 10% of BCD, and IGST 18%.
| Step | Calculation | Amount (₹) |
| Assessable value | — | 10,00,000 |
| BCD @10% | 10% × 10,00,000 | 1,00,000 |
| SWS @10% of BCD | 10% × 1,00,000 | 10,000 |
| Value for IGST | 10,00,000 + 1,00,000 + 10,000 | 11,10,000 |
| IGST @18% | 18% × 11,10,000 | 1,99,800 |
| Total duty paid at customs | 1,00,000 + 10,000 + 1,99,800 | 3,09,800 |
| Recoverable as ITC (IGST) | — | 1,99,800 |
| Real cost of duties | BCD + SWS | 1,10,000 |
The insight: the headline duty looks like 31% of value, but the real cost is 11%, provided you're GST-registered and claim the IGST credit properly. Actual rates vary by product, so check your item's tariff heading and any exemption notifications. Our HSN code finder is a good starting point for classification.
5. Excise vs customs: side by side
| * | Excise duty | Customs duty |
| Taxable event | Manufacture/production in India | Import into (or export from) India |
| Scope after GST | Narrow: petroleum, tobacco | Broad: all imports, as per tariff |
| Law | Central Excise Act, 1944 + tariff | Customs Act, 1962 + Customs Tariff Act, 1975 |
| Administered by | CBIC | CBIC (through customs ports, ICEGATE) |
| Relevance to most MSMEs | Indirect (fuel costs) | Direct, if you import |
6. Practical steps for MSMEs that import or export
- Get an Importer-Exporter Code (IEC). You can't clear imports or exports without one. Apply for IEC · How the import export licence works
- Classify correctly. The tariff heading decides the BCD rate and exemptions. Misclassification is the most common cause of duty disputes.
- File through ICEGATE (via your customs broker): Bill of Entry for imports, Shipping Bill for exports.
- Claim the IGST credit in your GST returns, and reconcile it with ICEGATE data.
- Use export-promotion schemes to reduce duty costs:
- EPCG: import capital goods at zero customs duty against an export obligation. EPCG guide
- Advance Authorisation: duty-free import of inputs used in export production
- Duty drawback and RoDTEP: refund or remission of embedded duties and taxes on exported goods
- LUT under GST: export without paying IGST. GST LUT filing
- Check sector registrations, for example APEDA for agricultural and processed food exports.
7. Common misconceptions
"Customs duty is fully recoverable under GST." Only the IGST portion is. BCD and SWS are costs, so price them into your product.
"Excise duty applies to my manufacturing unit." Only if you manufacture the few goods still under central excise. For most MSMEs, GST is the relevant tax.
"Imports below a certain value are duty-free." Commercial imports are generally dutiable regardless of size. Some small-value exemptions apply to specific channels (like gifts or samples) under conditions, not to regular business imports.
FAQs
What is excise duty in simple words? A tax on making goods in India. After GST it mainly applies to petroleum and tobacco products.
What is the difference between excise duty and customs duty? Excise is charged on goods made in India. Customs is charged on goods crossing India's border.
Can MSMEs get customs duty exemptions? Yes, through schemes like EPCG and Advance Authorisation (usually tied to exports), and through product-specific exemption notifications.
Importing or exporting for the first time?
StartupFlora helps MSMEs get IEC, structure GST credits on imports and apply for export schemes like EPCG and LUT. Speak with our team.
General information only, not tax advice. Customs rates, cesses and exemptions change frequently through notifications, so verify current rates on CBIC/ICEGATE or with a licensed customs broker.