Why customs rules need to factor in at least a decade of price rise

Every passenger landing in India from overseas, after completing immigration and collecting their baggage, has to pass through Customs, where goods beyond the permitted duty-free allowance must be declared through the Red Channel, else the passenger can simply pass through the Green Channel. India's duty-free baggage allowance was last updated in 2016, prescribing allowance limits on which no duty is payable for different categories of passengers (see box).

Under the current baggage rules, travellers can bring up to 100 cigarettes, 25 cigars or 125 grams of tobacco, and two litres of alcohol/wine duty-free. Personal ornaments (other than gold or silver in any other form) are allowed. However, firearms, more than 50 cartridges, and LCD televisions are not permitted. Overall, these rules are broadly in line with international practices.

Indians returning after staying abroad for work, study or business also get extra relief. They can bring used household items duty-free based on their stay up to Rs 1 lakh up to one year, Rs 2 lakh up to two years, and Rs 5 lakh for more than two years. Those staying abroad for over one year may also bring jewellery duty-free up to 20g up to Rs 50,000 for men and 40g up to Rs 1,00,000 for women.

The Rs 50,000 limit was reasonable in 2016, but inflation has reduced purchasing power. Goods costing Rs 50,000 in 2016 now cost closer to Rs 75,000 as common travel purchases like clothing, footwear, perfumes, cosmetics and electronics have become more expensive. This gap between rising prices and a static baggage allowance has created difficulties for travellers.

When the rules were framed, an allowance of Rs 50,000 was adequate for several items. However, changes in prices and purchasing power over time means the situation is much different today. In 2016, $1 cost about Rs 67, so a $750 item cost roughly Rs 50,000. In 2026, $1 has risen to around Rs 90, making the same item cost about Rs 67,500, making travellers pay almost Rs 17,500 more for the same product purely on account of exchange rate difference without even factoring in the rise in price.

At the same time, the economic position of Indian citizens has improved over the last decade. Per capita income has risen sharply, reflecting higher earnings and spending capacity. However, the duty-free baggage allowance has remained unchanged, creating a clear mismatch with today's reality.

A look at an indicative travel basket (see chart) shows that items that fit within the Rs 50,000 limit in 2016 now cost close to Rs 1,00,000 after accounting for inflation, even without any luxury purchases. That points to a need to increase the allowance to Rs 1,00,000 to match current realities.

Passengers should be aware that international travel is subject to closer scrutiny. India has Customs Cooperation Agreements with many countries to share information in real time. As a result, high-value purchases made abroad and tax refunds claimed may already be known to Indian Customs, often leading to Red Channel checks.

Accordingly, the govt in the upcoming budget may consider increasing the duty-free baggage allowance from the present Rs 50,000 to Rs 1,00,000. An increase in the allowance would better reflect today's costs and current travel realities. Additionally, higher duty-free spending would boost business at Indian airports, increase foreign exchange earnings and result in higher revenue for govt as passengers use baggage limit to buy products at duty-free shops in India. Also, the baggage limit on transfer of residence needs to be increased.

The writer is tax partner, EY India. Views expressed are personal