Containers and shipping
FOB meaning: Free On Board
Independent site, not a government service. General information, not customs advice.
Indian valuation rules use FOB value as a base. Enter the price, and any freight and insurance you know, to get a customs value.
Customs value from an FOB price
Customs value
₹6,05,625
| Freight, 20% of FOB | ₹1,00,000 |
| Insurance, 1.125% of FOB | ₹5,625 |
Rule 10(2), Customs Valuation Rules 2007. Commissions, royalties and assists can also apply.
FOB stands for Free on Board, one of the four rules for sea and inland waterway transport under the Incoterms® Rules. HMRC, in its UK guidance, describes it this way: the seller delivers the goods on board the ship the buyer has nominated, at the named port of shipment, or procures goods already so delivered. The risk of loss or damage passes when the goods are on board, and the buyer bears all costs from that moment. FOB also has a second life as a value in India. Rule 10(2) of the Customs Valuation Rules uses the free on board value as the base for its fallback percentages: if transport cost cannot be ascertained, it is 20 per cent of the FOB value, and if insurance cannot be ascertained, it is 1.125 per cent. For goods by air, ascertainable transport cost above 20 per cent of FOB is capped at that level. So a FOB invoice is the start of the sum, not its end, and your freight bill decides how far the value moves.
Tariff and rules read by Radif Partners · Editorial policy · Method and sources
FOB against the rules next to it
| Rule | Delivery | Risk passes | After delivery |
|---|---|---|---|
| FAS | Alongside the ship | When alongside | Buyer bears all costs |
| FOB | On board | When on board | Buyer bears all costs |
| CFR | On board | When on board | Seller pays costs and freight to the named port |
Three values from one FOB price
With a price of ₹5,00,000 and no details of cost, the fallbacks give a customs value of ₹6,05,625. With a freight bill of ₹40,000 and insurance of ₹5,000, it falls to ₹5,45,000. Keep the freight invoice, because it's what shows the cost can be ascertained under rule 10(2).
By air, a freight bill of ₹1,50,000 on the same goods is above the cap, so the value counts ₹1,00,000 of it, and with ₹5,000 of insurance comes to ₹6,05,000. The airline still bills the whole amount.
The label and the paperwork
For customs in India, the label on the invoice matters less than what you can document. HMRC notes for the UK that a rule does not restrict the valuation method; we read no Indian text in those words, and rule 10 speaks of cost, not of labels. See CIF for the other common price, and bill of lading for what that document proves about shipment. The HMRC guidance and the US trade administration page are our sources for the rule, in our own wording.