Indirect Tax Laws and Practice · Valuation and Related Party Transactions

Cost Adjustments: Additions to Transaction Value under Rule 10

Updated 11 October 2026 · Fact-checked

Under Section 14 and Rule 10, you start with the price actually paid or payable for imported goods and add listed items not already in that price: commissions (not buying commissions), packing, assists, royalties, resale proceeds to the seller, other conditions-of-sale payments, and freight and insurance to the place of importation. Nothing outside Rule 10 can be added.

Understand Cost Adjustments: Additions to Transaction Value

Customs value is not just the invoice price. Section 14 says the transaction value is the price actually paid or payable for goods sold for export to India, and the first proviso says it must include other costs and services, such as commissions and brokerage, engineering, design work, royalties and licence fees, transport, insurance, loading, unloading and handling, in the manner the rules specify.

Rule 10 is that specification. It is a closed list. Rule 10(4) says no addition can be made except as the rule provides. Rule 10(3) says every addition must rest on objective and quantifiable data. So if a cost is not in the list, or cannot be quantified, you do not add it.

The logic is simple. The buyer should not escape duty because part of the real cost of the goods was paid outside the invoice. A buyer may pay a royalty separately, supply moulds free to the foreign maker, or pay freight to a shipping line. All of these are part of what it costs to bring the goods to India, so they enter the value.

The key test for each item is: was it already included in the price? Rule 10 adds items only to the extent they are incurred by the buyer and not included in the price actually paid or payable. Adding something twice is the commonest way to lose marks.

Finally, freight and insurance are added up to the place of importation. Costs after that point, such as inland transport in India, are not added. Transshipment costs to another Indian customs station are excluded when goods come by sea or air and are transshipped.

Key rules to remember

Basic structure: Assessable value = Price actually paid or payable + Rule 10 additions (not already included); Duty is then computed on this value. Deductions are not allowed unless the rules permit them.
Rule 10(1)(a) additions: Commissions and brokerage (except buying commissions) + cost of containers treated as one with the goods + cost of packing (labour or materials); Added only to the extent incurred by the buyer and not already in the price.
Rule 10(1)(b) assists: Apportioned value of materials, components, parts, tools, dies, moulds, materials consumed, and engineering, development, art work, design work, plans and sketches done outside India, supplied by the buyer free or at reduced cost; Design and engineering work counts only if undertaken elsewhere than in India and necessary for production of the goods.
Royalties and licence fees: Add royalty and licence fees related to the goods that the buyer must pay, directly or indirectly, as a condition of sale; Not added if already in the price. Rule 10(1)(c) applies even if the goods are subjected to the process after importation (Explanation).
Resale proceeds and other payments: Add any part of subsequent resale, disposal or use proceeds accruing to the seller + all other payments made as a condition of sale; Rule 10(1)(d) and (e). Payments to a third party to satisfy the seller's obligation count.
Freight, insurance and handling: Add transport, loading, unloading and handling charges to the place of importation + insurance to the place of importation; Rule 10(2). Includes ship demurrage on chartered vessels, lighterage and barge charges.
Default freight: Freight not ascertainable = 20% of FOB value. If FOB is not ascertainable but FOB + insurance is, freight = 20% of that sum; For air imports, where freight is ascertainable it cannot exceed 20% of FOB value.
Default insurance: Insurance not ascertainable = 1.125% of FOB value. If FOB is not ascertainable but FOB + freight is, insurance = 1.125% of that sum; Used only when actual insurance cost is not ascertainable.

How to solve Cost Adjustments: Additions to Transaction Value questions

Use the same sequence for any question on additions to transaction value. It keeps you from missing items and from double counting.

1Write down the price actually paid or payable as per the invoice. Note the currency and the exchange rate applicable under Section 14 (rate on the date the bill of entry is presented).
2List every other cost in the question. Tag each as inside the price or outside the price.
3Test each outside item against Rule 10: commission, packing, container, assist, royalty, resale proceeds, other condition-of-sale payment, freight or insurance.
4Remove items that are not additions: buying commission, inland freight after the place of importation, post-import charges, duty itself, and design work done in India.
5Check freight and insurance. If actual figures are given, use them. If not ascertainable, apply 20% and 1.125% with the correct base.
6For assists, add the apportioned value. Include only the part relating to the goods being valued.
7Convert to rupees, total the figures and state the assessable value. Show each addition on a separate line with a reason.

Quickest way: Three-column tick method

When to use it: Use this in the objective section and in long numerical questions with many cost items.

Draw three columns: Already in price, Add under Rule 10, Do not add.
Place every item in one column. Anything in the first or third column is ignored in the working.
Check for default rules only if the question says freight or insurance is not ascertainable.
Add the middle column to the invoice price and convert to rupees once, at the stated exchange rate.

Common mistakes in Cost Adjustments: Additions to Transaction Value

Adding buying commission to the value.
Students remember 'commission' as an addition and miss the exception.
Fix: Rule 10(1)(a)(i) adds commissions and brokerage except buying commissions. Selling commission paid by the buyer is added; commission paid to the buyer's own agent for buying is not.
Adding royalty that is already in the invoice price.
Students add everything that is named in the question without checking whether the price covers it.
Fix: Add royalty and licence fees only to the extent not included in the price actually paid or payable.
Including inland freight or post-import costs.
Students treat all transport as part of value.
Fix: Rule 10(2) covers costs only to the place of importation. Costs within India after that point are excluded.
Applying 20% to the wrong base, or applying it when actual freight is known.
The default provisos look similar and are easy to mix up.
Fix: Use 20% of FOB only when freight is not ascertainable. Use 1.125% for insurance. If FOB is unknown, use the sum with the other ascertainable cost as the base.
Adding design work done in India as an assist.
Students overlook the geographical condition in Rule 10(1)(b)(iv).
Fix: Only engineering, development, art work, design work, plans and sketches undertaken elsewhere than India and necessary for production are added.
Adding an item that cannot be quantified.
Students add a cost on logic alone.
Fix: Rule 10(3) requires objective and quantifiable data. Without it, no addition is made.

Worked examples

Example 1

Indian importer Sahyadri Engineering buys machine parts from a Germany-based supplier. Invoice price is USD 40,000. Other details: buying commission paid to its own agent USD 1,000; selling commission paid by the buyer, not included in price, USD 800; packing cost borne by the buyer USD 600; royalty payable to the supplier as a condition of sale, not in price, USD 2,000; freight to the Indian port USD 3,000; insurance to the Indian port USD 500; inland freight from port to factory ₹25,000. Exchange rate for customs is ₹80 per USD. Compute the assessable value.

Show the solution

Invoice price: USD 40,000.
Buying commission USD 1,000 is excluded under Rule 10(1)(a)(i).
Add selling commission: USD 800.
Add packing cost: USD 600.
Add royalty: USD 2,000.
Add freight USD 3,000 and insurance USD 500 to the place of importation.
Inland freight ₹25,000 is after the place of importation, so it is excluded.
Total in USD = 40,000 + 800 + 600 + 2,000 + 3,000 + 500 = 46,900.
Assessable value = 46,900 × 80 = ₹37,52,000.

Answer: Assessable value is ₹37,52,000.

Example 2

Kaveri Textiles imports fabric by sea. The FOB value is USD 50,000. Freight is not ascertainable. Actual insurance is USD 700. The buyer also supplied design sketches, prepared in Italy, to the foreign maker free of charge; their apportioned value for this consignment is USD 1,500, not in price. Exchange rate is ₹82 per USD. Compute the assessable value.

Show the solution

Price (FOB) = USD 50,000.
Freight is not ascertainable, so freight = 20% of FOB = 0.20 × 50,000 = USD 10,000.
Insurance is ascertainable, so use actual USD 700.
The design sketches were prepared outside India and are an assist under Rule 10(1)(b)(iv). Add USD 1,500.
Total in USD = 50,000 + 10,000 + 700 + 1,500 = 62,200.
Assessable value = 62,200 × 82 = ₹51,00,400.

Answer: Assessable value is ₹51,00,400.

Exam tips

In MCQs, look for the trap word: buying commission, inland freight, or items already in the price. These are the usual reasons an option is wrong.
In numerical questions, show a line for each addition and a one-line reason. Marks go for correct treatment even when arithmetic slips.
Check which currency and exchange rate the question gives. Section 14 ties conversion to the date the bill of entry is presented.
For freight and insurance, read whether the figure is 'actual' or 'not ascertainable' before applying 20% or 1.125%.
Quote Rule 10(3) and 10(4) when a question asks whether an unlisted or unquantifiable cost can be added.

Practice questions from Valuation and Related Party Transactions

Cost Adjustments: Additions to Transaction Value in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CA FinalInclusions and Additions to Transaction Value (Rule 10)

Cost Adjustments: Additions to Transaction Value: frequently asked questions

What is the difference between Section 14 and Rule 10?

Section 14 sets transaction value as the price actually paid or payable and says certain costs must be included. Rule 10 gives the detailed list of what is added and the conditions. You apply Section 14 as the principle and Rule 10 as the working list.

Is the 20% freight rule always applied?

No. It applies only when the freight cost is not ascertainable. If actual freight is known, you use it. For air imports, actual freight cannot exceed 20% of the FOB value.

Are royalties always added to customs value?

No. They are added only if they relate to the imported goods, the buyer must pay them directly or indirectly as a condition of sale, and they are not already in the price. The Explanation covers royalties for a process even when the process happens after import.

Is buying commission added?

No. Rule 10(1)(a)(i) adds commissions and brokerage except buying commissions. Other commissions incurred by the buyer and not in the price are added.