EPCG Scheme (Export Promotion Capital Goods)
Complete Guide to Duty Savings, Eligibility & Compliance
The Export Promotion Capital Goods (EPCG) Scheme allows exporters to import capital goods for pre-production, production, and post-production at zero customs duty, subject to an export obligation of 6 times the duty saved over 6 years.
The Export Promotion Capital Goods (EPCG) Scheme is a flagship export incentive scheme administered by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce & Industry, Government of India.
The scheme addresses one of the biggest competitive challenges for Indian exporters—the high cost of modern machinery and technology. By allowing import of capital goods at zero customs duty, EPCG provides an immediate cost benefit that directly improves export competitiveness.
In exchange for this duty concession, the EPCG license holder commits to fulfilling a specified Export Obligation (EO)—a commitment to export goods or services worth at least 6 times the duty saved, within 6 years from the date of issue of the EPCG authorization.
“The EPCG scheme is a strategic tool for export-oriented MSMEs and large enterprises alike—transforming duty savings into a competitive edge in global markets.”
What is the EPCG (Export Promotion Capital Goods) Scheme?
The EPCG Scheme permits import of capital goods—machinery, equipment, components, and spares—required for manufacturing export products, at nil customs duty (i.e., Basic Customs Duty + IGST exemption). This is a significant benefit given that heavy machinery can attract duties of 18–28%.
The scheme is governed by Chapter 5 of the Foreign Trade Policy (FTP) of India. An EPCG Authorization is issued by the relevant Regional Authority (RA) of DGFT, and the importer must obtain this authorization before placing the import order.
The Export Obligation (EO) is calculated as 6 times the duty saved (FOB value). For example, if the duty saved on imported machinery is ₹1 crore, the exporter must export goods worth ₹6 crore over 6 years. EPCG authorizations also carry a 'Specific EO'—achieving 50% of the EO in the first 4 years.
Who is Eligible for the EPCG Scheme (Export Promotion Capital Goods)?
The EPCG Scheme is available to a wide range of manufacturers and service exporters:
Manufacturer Exporters
Companies that manufacture goods in India and export them in their own name. EPCG capital goods must be used in production of the exported product.
Merchant Exporters
Exporters who purchase goods from manufacturers and export them. Can apply for EPCG with a tie-up with a supporting manufacturer.
Service Exporters
Hotels, hospitals, software companies, and other service providers who earn foreign exchange are eligible for EPCG. EO is fulfilled through foreign exchange earnings.
Common Service Providers (CSPs)
SEZ units, EPZs, and recognized Common Service Providers (like testing labs for exporters) may also be eligible.
Status Holders
Star Export Houses (One to Five Star) have relaxed conditions and concessional Export Obligation norms under EPCG.
ℹ️ Eligibility Checklist:
- •Must have an Import Export Code (IEC) from DGFT.
- •Must have GST registration.
- •The capital goods must be directly related to the export product/service.
- •Annual Average Export Obligation (AAEO) must meet the calculated threshold.
- •EPCG authorization must be obtained BEFORE importing the capital goods.
What Types of Projects are Covered?
EPCG covers import of capital goods across the following categories for export production:
Plant & Machinery
Complete manufacturing lines, CNC machines, injection molding, auto-components, textile machinery, and any production equipment.
Spares & Accessories
Spares and accessories up to 10% of the CIF value of the capital goods are permissible under the EPCG authorization.
Technology Upgrades
Computer systems, servers, testing equipment, laboratory instruments, and other technology-driven production upgrades.
Service Sector Capital Goods
Equipment for hotels (kitchen, laundry), hospitals (medical devices, scanners), IT companies (servers, networking), and other service exporters.
Pre & Post Production Equipment
Goods used in pre-production activities (R&D, quality testing) or post-production (packaging, logistics) directly linked to export goods are also covered.
Domestically Sourced Capital Goods
EPCG also allows procurement of capital goods from domestic manufacturers at concessional GST rate (equivalent to import duty benefit), promoting Make in India.
Key Benefits
Customs Duty on Import
0%
Complete exemption from Basic Customs Duty and IGST on capital goods imported under EPCG authorization—often saving 18–28% of machinery cost.
Export Obligation (EO)
6X
Fulfill exports worth 6 times the duty saved over 6 years. Status holders and MSME units get relaxed EO norms.
EO Reduction for Domestic Sourcing
20%
If capital goods are sourced domestically instead of imported, the Export Obligation is reduced by 20%.
Offset via Agri Exports
25%
Export of agricultural products, handicrafts, and other specified items can offset up to 25% of the EO through FTP provisions.
Lending Institutions
Various financial institutions provide loans under this scheme:
- ✓DGFT Regional Offices (Application Authority)
- ✓Customs Authorities (Duty Exemption at Port)
- ✓ECGC (for export credit insurance)
- ✓EXIM Bank (for pre/post-shipment finance)
How to Apply? (Step-by-Step)
Obtain Import Export Code (IEC)
If not already done, apply for IEC from DGFT online portal (dgft.gov.in). This is the basic prerequisite for any export/import authorization.
Need IEC registration? Contact us →Prepare the EPCG Authorization Application
File the application online on DGFT e-portal (dgft.gov.in) along with Aayaat Niryaat Form ANF 5A. Specify the capital goods to import, CIF value, and export product details.
Pay Application Fee
Pay the applicable EPCG application fee based on the CIF value of the capital goods (typically 0.5% of CIF value, subject to a minimum of ₹5,000).
DGFT Review & EPCG License Issuance
DGFT Regional Authority reviews the application. Upon approval, the EPCG Authorization (License) is issued, specifying duty saved, export obligation, and validity period.
Register with Customs & Import Machinery
Register the EPCG Authorization at the port of import with Customs. Import the capital goods duty-free within the authorization's validity period (24 months).
Install & Commence Production
Install the capital goods and obtain a Chartered Engineer Certificate confirming installation and commissioning for export production.
Fulfill Export Obligation & Redemption
Export products worth 6X the duty saved within 6 years. Submit export documents (shipping bills, bank realization certificates) to DGFT to get the EPCG obligation 'redeemed' or closed.
ℹ️ Approval Timeline: EPCG Authorization is typically issued within 3–10 working days if the application is complete. Importing the capital goods can take 30–90 days depending on the vendor country and shipping.
Documents Required
Note: The proforma invoice from the foreign supplier and the list of capital goods must be specific (with HS Codes) and match the manufacturing process of the export product. Mismatched HS codes are the most common cause of EPCG application rejection.
Common Mistakes Applicants Make
⚠️ Importing Before Obtaining EPCG Authorization
The EPCG license must be obtained BEFORE importing the machinery. Importing first and then applying for EPCG is not permitted and will result in full duty payment.
⚠️ Incorrect HS Code Classification
Using wrong HS codes for capital goods in the application leads to mismatch with customs records and difficulties in redemption.
⚠️ Not Maintaining Export Proof
Failure to maintain and submit Shipping Bills, BRCs, and eBRC records leads to inability to prove export obligation fulfillment.
⚠️ Missing Annual EO Redemption Filings
EPCG holders must file annual reports with DGFT to track EO fulfillment. Missing filings can result in penalties under Foreign Trade (Development & Regulation) Act.
⚠️ Using Capital Goods for Non-Export Production
EPCG capital goods must be exclusively used for export production. Using them in domestic production is a violation and may result in demand of duty with interest.
Frequently Asked Questions
What is the Export Obligation under EPCG?
The Export Obligation (EO) is 6 times the duty saved on imported capital goods, to be fulfilled within 6 years. For specific categories (like Status Holders), the EO can be reduced.
Can I use EPCG for second-hand machinery?
Yes, second-hand capital goods not older than 10 years can be imported under EPCG, subject to a certificate of residual life from an Chartered Engineer.
What happens if I cannot fulfill the Export Obligation?
If EO is not fulfilled within the specified time, you must pay the full customs duty along with interest (15% per annum) for the shortfall. Extensions can be applied for from DGFT.
Can domestic procurement of capital goods be covered under EPCG?
Yes. Capital goods procured domestically qualify under EPCG with an equivalent benefit (tax refund/concession equivalent to duty saved), but the EO is reduced by 20% compared to the import model.
Can service sector companies use EPCG?
Yes, hotels, hospitals, software/IT companies, and other service exporters earning foreign exchange are fully eligible for EPCG. EO is tracked via Foreign Exchange Earnings (FEE).
What is the validity of an EPCG Authorization for importing the machinery?
The EPCG authorization is valid for 24 months from the date of its issue for importing capital goods. An extension can be applied for from DGFT if needed.
How do I get the EPCG obligation 'redeemed'?
Submit shipping bills, eBRCs (Bank Realization Certificates), and CA certificates for export turnover to the DGFT Regional Authority to get the EPCG obligation redeemed (closed) once EO is fulfilled.
Conclusion
The EPCG Scheme is one of the most financially significant export promotion tools available to Indian businesses. The zero-duty import of capital goods provides an immediate 18–28% cost reduction on machinery, which directly improves product quality, production efficiency, and export competitiveness.
However, the scheme comes with strict compliance requirements—accurate HS classification, exclusive export use of capital goods, annual EO reporting, and timely redemption filings. Non-compliance can lead to significant penalties under the FEMA and Foreign Trade Act.
Ewolyn's dedicated export compliance team specializes in end-to-end EPCG management—from authorization application to EO fulfillment tracking and final redemption filing—ensuring you capture the full benefit of the scheme without any compliance risk.
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