Import Tax in India: Why Imports Are Heavily Taxed?

Written by : Knowledge Centre Team

2026-02-23

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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.

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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.

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Glossary

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

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.

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.

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Why are Imports Heavily Taxed in India?

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What are India’s Main Imports?

Why are Imports Taxed Heavily?

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