Why are imports heavily taxed in India?

Why are Imports Heavily Taxed in India?

Learn why imports are heavily taxed in India, covering customs duty, economic protection, revenue needs, and impact on prices.

Written by : Knowledge Centre Team

2026-02-23

1971 Views

6 minutes read

Exit Pop Up

Live Life More Confidently

Get best insurance from our experts

Name is required Name should be Valid
Mobile Number is required Mobile Number should be Valid
DOB is required DOB should be Valid
Annual Income is required
Please tick to proceed further.

Thank you for your interest in our product. Our financial expert will connect with you shortly to help you choose the best plan.

India imposes multiple taxes on imports, primarily Basic Customs Duty (BCD) and Integrated GST (IGST), which are levied when goods enter the country. Under the GST framework, imports are treated as interstate supplies and attract IGST in addition to applicable customs duties, ensuring parity with domestically supplied goods.

These taxes serve several purposes. They generate government revenue, regulate foreign competition, and support domestic manufacturing by making imported goods relatively more expensive. Together, customs duties and IGST help balance trade objectives with economic development priorities. In India’s Union Budget 2026-27, the government continued its approach of customs duty rationalisation. While earlier budgets focused on sharply increasing duties on several finished goods to promote domestic manufacturing, the latest budget has focused more on selective duty reductions on certain raw materials and components to strengthen local production competitiveness, while maintaining higher tariffs on finished imported goods.

Key Takeaways

  • India levies Basic Customs Duty and IGST on imports to generate revenue and protect domestic industries.

  • Higher tariffs on finished goods and lower duties on inputs support local manufacturing and supply chains.

  • Union Budget 2026–27 focuses on tariff rationalisation to improve domestic manufacturing competitiveness.

  • Import duties encourage companies to manufacture locally and reduce reliance on imported finished goods.

  • High import taxes in India increase the prices of imported goods, but help strengthen the country’s domestic economy.

Why are Imports Heavily Taxed in India?

In recent years, the government has periodically revised customs duties to support domestic manufacturing and align with economic priorities. In earlier Union Budgets, such as 2025–26, customs duties were increased on sevaeral finished goods like furniture, toys, and select electrical appliances to discourage imports and promote local production.

However, in the Union Budget 2026–27, the government shifted towards a more balanced approach by rationalising the Indian tariff structures. The focus has been on reducing duties on certain raw materials, capital goods, and inputs needed for manufacturing, while largely continuing higher duties on finished imported products. This reflects a shift from broad-based duty hikes to targeted tariff optimisation aimed at strengthening domestic manufacturing under long-term economic strategies.

Save Taxes While Building Long-Term Wealth

Please enter correct name Please enter the Full name
Please enter valid mobile number Please enter Mobile Number
Please enter valid email Please enter Email
Consent is required

Enter OTP

An OTP has been sent to your mobile number

Didn’t receive OTP?

Application Status

Name

Date of Birth

Plan Name

Status

Unclaimed Amount of the Policyholder as on

Name of the policy holder

Policy Holder Name

Policy No.

Policy Number

Address of the Policyholder as per records

Address

Unclaimed Amount

Unclaimed Amount
Error

Sorry ! No records Found

.  Please use this ID for all future communications regarding this concern.

Request Registered

Thank You for submitting the response, will get back with you.

What are India’s Main Imports?

India’s key imports are crude oils, fuels, waxes, bituminous substances, jewellery (both precious and semi-precious categories), electrical equipment and machinery, nuclear reactors, mechanical appliances and chemicals (organic). One of India’s principal partners for imports is China, which makes up 16 per cent of all imports. India’s other import partners include the US, UAE, Saudi Arabia and Switzerland. According to a report by Economic Times, India imported products worth $118.4 billion from China in 2023-24. This marks a significant increase compared to $70 billion in 2018–19, reflecting India’s continued reliance on China for electronics, machinery, and industrial components.

Recent trade and budget policy trends also show that while India continues to rely on imports for critical sectors such as electronics, energy, and machinery, tariff rationalisation in the Union Budget 2026–27 aims to reduce dependency on fully built imports and instead encourage domestic assembly and manufacturing using imported components.

Why are Imports Taxed Heavily?

Indian tariff on imports is high because of India’s policy of encouraging local/homegrown industries. This is called import substitution industrialisation (ISI), a trade policy that is all about substituting imports with domestic manufacturing and production. The high import tariffs are a result of this policy, which recognises the need for industries in developing countries like India to be protected from international trade. This policy of import substitution goes back to the pre-1991 era, when companies were incentivised to produce for the local markets.

While import substitution remains an important objective, the Union Budget 2026–27 reflects an evolution of this strategy. Instead of simply increasing import duties across categories, the government is now focusing on creating a globally competitive domestic manufacturing ecosystem by lowering tariffs on inputs and maintaining higher tariffs on finished goods. This approach helps Indian manufacturers reduce costs while still protecting them from direct competition from imported finished products.

What is the Impact of the Government's Hike in Import Duties in India?

According to media reports, Indian micro, small and medium enterprises (MSMEs) have started to set up supply chains locally so as to lower manufacturing costs and also steer clear of heavy tax on imports. This incentivises more MSMEs and manufacturing hubs to ‘Make in India’.

Take the announcement of a government scheme aimed at boosting cell phone manufacturing in India, for instance. In the2020 Budget speech, the Finance Minister said this scheme would act as a complement to the country’s ‘Make in India’ policy. In fact, there has been an announcement on hike in duties on the import of some mobile parts. Touch assemblies and display panels attracted a 10 per cent import duty, while import duty on printed circuit board assemblies was increased to 20 per cent. Mobile chargers also became subject to a 20 per cent import duty. Many of these parts were previously imported in large volumes from China. These measures acted as a shot in the arm for companies to produce spare parts locally in order to save costs and strengthen domestic manufacturing.

Following the Union Budget 2026–27, industry experts expect further strengthening of domestic supply chains, especially in sectors like electronics, electric mobility, and manufacturing. The calibrated tariff rationalisation is aimed at making India an attractive manufacturing destination while ensuring consumers are not significantly burdened by excessive import costs.

Boosting Local Supply Chains

A hike in tax on imports has encouraged not just Indian companies and manufacturing units but also foreign firms based in India to look at local manufacturing and production. This also suggests that India could gradually turn into an investment hub, as local supply chains thrive. According to a report, India has earmarked US $6 billion to encourage manufacturing domestically and attract investments.

However, ensuring a greater push for domestic products and also meeting demands for certain products and commodities that India needs from elsewhere is a tightrope walk. Higher import duties have, in some cases, led companies to cut back on supplying such products in the country, leaving a gap. If this gap isnot filled quickly, it may lead to shortages or a hike in prices of commodities domestically. The need of the hour continues to be a calibrated approach to tax on imports, in order to boost the domestic industry while also meeting demand for certain products from abroad.

As economic policies world over undergo changes at a rapid pace, many entrepreneurs and individuals are faced with uncertainty over how to tide them over financially. One way to ensure that the future of your loved ones is protected is by opting for term insurance. You could also opt for features such as whole life coverage, and cover your spouse too in the same policy. There are additional riders, like accidental death benefit or child support benefit, that you could choose from. Stay protected from any future uncertainties by picking the right term insurance cover.

Glossary

  1. Basic Customs Duty (BCD): Tax charged on imported goods at the border to regulate imports and protect domestic industries
  2. Integrated GST (IGST): Tax levied on imports under GST to ensure imported goods are taxed like domestic products
  3. Import Duty: Government tax imposed on goods entering India to regulate trade and generate revenue.
  4. Tariff: A tax on imported goods used to protect domestic industries and influence trade.
  5. Import Substitution: A policy that promotes domestic production to reduce dependence on imported goods.
glossary-img
Uncertain About Insurance?

FAQs

Import duties in India are generally high  in order to protect domestic industries, encourage local manufacturing under initiatives like ‘Make in India’, and reduce dependence on imported finished goods. Tariffs also help the government generate revenue and support economic growth.

Import duty specifically refers to customs duty charged on imported goods. Import tax is a broader term that includes customs duty along with other charges like Integrated GST (IGST) and cess applied on imports.

Import duties in India are revised during the annual Union Budget. However, the government can also change tariff rates during the year through official notifications based on economic and trade needs.

Tariffs help protect domestic manufacturers, promote local production, regulate imports, and support government revenue. They are also used to strengthen India’s long-term industrial and economic strategy.

Yes, India’s average tariff rates are higher than the global average for some products, especially finished goods. However, duties are lower on many raw materials and essential imports to support manufacturing.

Import duties increase the cost of imported goods. Businesses often pass this cost on to consumers, which makes imported products more expensive compared to locally manufactured alternatives.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

Recent Blogs

What Is an Employee Salary Slip? Format, Components & Tax Benefits
19 Mar '26
4080 Views
13 minute read
Learn what a salary slip is, why it matters, and how it impacts your tax-saving strategies. Includes downloadable format and latest rules.
Read More
Tax Saving
What is TDS and TCS? Difference Between TDS and TCS
18 Mar '26
8050 Views
9 minute read
Understand the key differences between TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) for smarter tax savings. Explore the Canara HSBC Life Insurance blog for insights.
Read More
Tax Saving
What Is Tax Liability? Meaning, Calculation & Examples
05 Mar '26
1994 Views
7 minute read
Tax liability is the total tax payable after deductions and exemptions. Learn its meaning, how to calculate tax liability and how it affects ITR filing in India with examples for individuals.
Read More
Tax Saving
Section 195 of Income Tax Act - TDS for NRIs Explained
25 Feb '26
1066 Views
7 minute read
Learn all about Section 195 of the Income Tax Act, its applicability on NRI payments, TDS rates & how it impacts non-resident Indians earning in India.
Read More
Tax Saving
FATCA Declaration: Meaning, Eligibility & Filing Guide
25 Feb '26
66 Views
6 minute read
Understand FATCA declaration requirements, who must submit it, reporting rules for foreign financial assets, and why compliance is important for Indian taxpayers.
Read More
Tax Saving
Income Tax Rates in India: Latest Slabs & Comparison Guide
25 Feb '26
78 Views
6 minute read
Explore current income tax rates under old and new regimes, slab-wise comparisons, and practical tips to select the most suitable tax regime for your income profile.
Read More
Tax Saving
Presumptive Income Tax Filing - A Complete Guide
24 Feb '26
4244 Views
10 minute read
Learn all about presumptive income tax filing, its eligibility, key benefits & how it simplifies tax compliance for businesses & individuals in India.
Read More
Tax Saving
Are You Overpaying Tax as a Salaried Individual? Find Out
24 Feb '26
1535 Views
7 minute read
Did you know salaried individuals often overpay tax without realising it? Discover common reasons & smart tips to avoid overpaying taxes in India.
Read More
Tax Saving
Short Term Capital Gains Tax & Calculation | STCG Tax India
23 Feb '26
10714 Views
11 minute read
Understand short term capital gains tax in India. Know how STCG is taxed, rates, and calculation for different assets under current tax rules.
Read More
Tax Saving

Tax Savings - Top Selling Plans

We bring you a collection of popular Canara HSBC life insurance plans. Forget the dusty brochures and endless offline visits! Dive into the features of our top-selling online insurance plans and buy the one that meets your goals and requirements. You and your wallet will be thankful in the future as we brighten up your financial future with these plans.

Family Shield: Enhanced Protection

iSelect Smart360 Term Plan
  • 3 Plan options
  • Life cover till 99 years
  • Steady income benefit
  • Block your premium at inception

Fixed Returns, Zero Risks & Worries

iSelect Guaranteed Future Plus
  • 4 Plan options
  • Life cover + Guaranteed benefits
  • Accidental death benefit
  • Premium protection cover

Start Young, Pay Less, Stay Secured

Young Term Plan
  • Life cover till 99 years
  • Coverage for spouse
  • Block your premium rate
  • Covers 40 critical illness