Customs Duty on Import of Share Certificates for Dematerialization into India

Introduction

The Indian government’s recent mandate for dematerialization of shares of private companies has raised concerns about the customs duty implications for NRIs and foreign shareholders. For dematerialization, physical copy of the share certificate is required to be sent to India. This article analyses the customs law implications and the applicable customs duty on the import of share certificates into India for dematerialization.

Customs Tariff Classification and Rate of Applicable Customs Duty

When share certificates are imported into India, they are classifiable under customs tariff item 4907 0090 when imported via the courier mode or under 9803 0000 when imported as a part of baggage. The rate of customs duty applicable for items falling under 4907 0090, including share certificates, is 24.32%, and for items falling under 9803 0000, the rate of customs duty is 38.5%.

Customs Duty Exemption for Re-Import of Share Certificates for Dematerialization

The CBIC vide its Circular No. 60/2000-Cus dated 12.07.2000 has clarified that for re-import of share certificates into India for dematerialization, the importer can avail the benefit of exemption from payment of applicable customs duty by availing the benefit of exemption notification 94/1996-Cus dated 16.12.1996 (this notification has been rescinded and replaced with another notification no. 46/2017-Cus dated 30.06.2017). However, for availing the benefit of this notification dated 30.06.2017 certain conditions must be fulfilled, such as re-import should be made within a maximum period of three years (plus two years) from the date of export and the export should have been made on filing of shipping bill. On account of such onerous conditions, benefit of this re-import exemption notification may not be available to a lot of importers, in which case customs duty will be payable on import of share certificates into India at the rates discussed above.

Valuation Issues

Another critical aspect to consider is the value on which customs duty will be payable – the value of the piece of paper on which the share certificate has been issued/printed or the face value of the share or the intrinsic value of the share. Therefore, any NRI or foreign individual or company planning to send share certificates to India for dematerialization should carefully consider these customs duty liability and valuation issues to avoid disputes and financial liabilities at a later stage.

Conclusion

The import of share certificates into India for dematerialization is subject to payment of applicable customs duty. The rate of customs duty varies depending on the mode of import, and no exemption has been provided specifically to exempt share certificates from applicable customs duty on their importation into India. Therefore, it is essential to understand the customs law implications and the applicable customs duty rates to avoid any financial liabilities or disputes during the import of share certificates into India for dematerialization.