Tax Bulletin, December, 2022 Volume - 125

Understanding International
Commercial Terms (Incoterms)
– 2020 by ICC Paris
What are Incoterms 2020 and its purpose?

 The INCOTERMS is a universally recognized set

of definitions of international trade terms, such as
FOB, CFR and CIF, developed by the International
Chamber of Commerce (ICC) in Paris, France.

 The Incoterms rules are a total of 11 terms published

by the International Chamber of Commerce, which
define costs, risks and obligations of buyers and
sellers in international transactions

 It defines the trade contract Responsibilities and

Liabilities between buyer and seller. It is invaluable
and a cost-saving tool.

 Easy to Communicate with different Languages &

Business Practices

 The INCOTERMS was first published in 1936

-INCOTERMS 1936 - and it is revised periodically
to keep up with changes in the international trade
needs.

 The complete definition of each term is available

from the current publication---INCOTERMS 2020

 Banks use Incoterms for fixing and utilisation/

disbursements of working limits (pre-post shipments)
given to exporters;

 Customs uses Incoterms (mainly CIF) for arriving at

the Custom Duty payable by the importers and FOB
for Incentives disbursements by the DGFT etc.

 India, generally exporters prefer FOB and Importers

prefer CIF and in Europe traders prefers DDP due to
CMA Mr Nijay Gupta customs union
Consultant and Trainer
 This divides the duties between the exporter and

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 Tax Bulletin, December, 2022 Volume - 125

importer. The more importer expect exporter to do the clearance of the goods for export or import
its duty, than exporter is eligible to charge more by and packing requirements
way of Incoterms.
3. Various Incoterms: Marine Restricted -
2. The process followed for Incoterms 2020 Blue Omni-Modal -Green
– a common set of rules:
EXW – Ex Works
 The exporter and the importer need not undergo a
lengthy negotiation about the conditions of each FCA – Free Carrier
transaction.
FAS – Free Alongside Ship
 Once they have agreed on a commercial term
like FOB, they can sell and buy at FOB without FOB – Free On Board
discussing who will be responsible for the
freight, cargo insurance, and other costs and CFR – Cost and Freight
risks
CIF – Cost, Insurance & Freight
 The Incoterms provide the most often used
international terms of trade and an official CPT – Carriage Paid To
version of the Incoterms should be referenced in
the text of the contract. CIP – Carriage & Insurance Paid To

 The goal is to alleviate or reduce confusion over DPU – Delivered At Pace Unloaded
interpretations of shipping terms by outlining
who is obligated to take control of and/or insure DAP – Delivered At Place
goods at a particular point in the shipping
process. DDP – Delivered Duty Paid

 Furthermore, the terms outline the obligations for Omni- Modal Marine Restricted

The costing process for understanding each incoterm

INCOTERMS -2020 - Costing & Pricing

Inconterms 2020

Costing & Pricing Mobile-INR

Marine
Omni-Modal Equivalent Restricated
INR INR

Ex-Works 25000 FAS 25100

FCA 25000 FOB 25200

CPT 25500 CFR 25500

CIP 25700 CIF 25700

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Tax Bulletin, December, 2022 Volume - 125

DAU 25800

DAP 25800

DDP 28000

IUSD=73.50

2800/73.50=$380.95 per Piece

Incoterms Chart describing the duties and responsibility of Seller and Buyer for each Incoterms as under:

Any Transit Modee Sea inland waterway Transport Any Transport Mode

EXW FCA
A FAS FOB CFR CIF CPT CIP DPU DAP DDP
Ex Works Free Free Free On Cost and Cost, Carriage Carriage & Delivered Delivered Delivered
Carrier Alongsid Board Freight Insurance Paid To Insurance At Pace At Place Duty Paid
Ship & Freight Paid To Unloaded

Transfer of Risk At Buyer's On Buyer's Alongsid On Board On Board On Board At Carrier At Carrier At Named At Named At Named
Deposal Transport Ship Vissel Vissel Vissel Place Place Place
Unloadad
Charges/Fees

Packaging Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller

Loading Charges Buyer Seller* Seller Seller Seller Seller Seller Seller Seller Seller Seller

Delevery to Port Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Place
Export Duty, Taxes& Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller Seller
Security clearence
Origen Terminal Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller Seller
Charges
Loading on Carriages Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller Seller

Carriages Charges Buyer Buyer Buyer Buyer Seller Seller Seller Seller Seller Seller Seller

Insurance Seller Seller

Distination Terminal Buyer Buyer Buyer Buyer Buyer Buyer Buyer** Buyer** Seller Seller Seller
charges
Delevery to Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller Seller Seller
Distination

Inport Duties, Taxes & Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Buyer Seller
Security Clearance

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 Tax Bulletin, December, 2022 Volume - 125

INCOTERMS –ICC PARIS

Any mode of transport

Incoterms – ICC, Paris - Omni-Modal

EXW – Ex Works (named place of delivery) The seller makes the goods available at its premises. The buyer is responsible
for unloading. This term places the maximum obligation on the buyer and minimum obligations on the seller

FCA – Free Carrier (named place of delivery) The seller hands over the goods, cleared for export, into the disposal of the
first carrier (named by the buyer) at the named place. The buyer pays for carriage to the named point of delivery, and
risk passes when the goods are handed over to the first carrier.

CPT – Carriage Paid To (named place of destination) The seller pays for carriage. Risk transfers to buyer upon handing
goods over to the first carrier at place of Import.

CIP – Carriage and Insurance Paid to (named place of destination) The containerized transport/multimodal equivalent
of CIF. Seller pays for carriage & insurance to the named destination point; risk passes when the goods are handed over
to the first carrier.

DPU – Delivered at Place Unloaded (named place Unloaded) Seller pays for carriage to the terminal, except for costs
related to import clearance, and assumes all risks up to the point that the goods are unloaded at the terminal.

DAP – Delivered at Place (named place of destination) Seller pays for carriage to the named place, except for costs
related to import clearance, and assumes all risks prior to the point that the goods are ready for unloading by the buyer.

DDP – Delivered Duty Paid (named place of destination) Seller is responsible for delivering the goods to the named
place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and
taxes. The buyer is responsible for unloading

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Tax Bulletin, December, 2022 Volume - 125

INCOTERMS –ICC PARIS

Sea and inland waterway transport

FAS – Free Alongside Ship (named port of shipment) The seller must place the goods alongside the ship at the named
port. The seller must clear the goods for export. Suitable only for maritime transport but NOT for multimodal sea transport
in containers. This term is typically used for heavy-lift or bulk cargo.

FOB – Free on Board (named port of shipment) The seller must load the goods on board the vessel nominated by the
buyer. Cost and risk are divided when the goods are actually on board of the vessel. The seller must clear the goods for
export. The term is applicable for maritime and inland waterway transport only but NOT for multimodal sea transport in
containers. The buyer must instruct the seller the details of the vessel and the port where the goods are to be loaded.

CFR – Cost and Freight (named port of destination) Seller must pay the costs and freight to bring the goods to the port of
destination. However, risk is transferred to the buyer once the goods are loaded on the vessel. Insurance for the goods
is NOT included. This term is formerly known as CNF (C&F). Maritime transport only.

CIF – Cost, Insurance and Freight (named port of destination) Exactly the same as CFR except that the seller must in
addition procure and pay for the insurance. Maritime transport only

PS: Detailed explanation and study can be done with Incoterms 2020 published by ICC, Paris

Regulatory Framework

Sources used:
Google

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