Export Promotion Capital Goods (EPCG) Scheme

What is the EPCG Scheme?

The Export Promotion Capital Goods (EPCG) Scheme is a Foreign Trade Policy instrument administered by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry. According to the DGFT, the EPCG Scheme allows the "import of capital goods for pre-production, production and post-production at zero customs duty." The idea is to help Indian exporters modernise their machinery so that they can produce more competitive goods and services for the international market.

In simple terms, an exporter is allowed to bring in machinery, plant and related capital goods without paying the customs duty that would normally apply. In exchange, the exporter promises to export finished goods or services worth a fixed multiple of the duty that was waived. The scheme therefore trades an upfront tax concession for a future export commitment, aligning private investment with the national goal of growing exports.

EPCG is not a cash subsidy and it is not a citizen welfare benefit. It is a duty-exemption facility aimed squarely at businesses that export, or intend to export, on a sustained basis.

Who is eligible for the EPCG Scheme?

The EPCG Scheme covers three broad categories of applicants:

• Manufacturer exporters, with or without a supporting manufacturer.
• Merchant exporters who are tied to a supporting manufacturer.
• Service providers, including designated Common Service Providers who serve a group of exporters.

Every applicant must hold a valid Importer Exporter Code (IEC) issued by the DGFT, be registered under GST, and hold a Registration cum Membership Certificate (RCMC) from the relevant Export Promotion Council.

Who cannot apply: individual citizens cannot apply for a personal benefit under EPCG, because it is a trade-facilitation scheme, not an individual entitlement. A firm that does not export, or does not intend to take on an export obligation, is also not a suitable applicant, since failure to export triggers recovery of the duty saved with interest. Units that only sell in the domestic market gain nothing from EPCG.

How much benefit does the EPCG Scheme provide?

There is no fixed rupee cap on the benefit. The value of the concession depends entirely on the customs duty that would otherwise have been payable on the capital goods being imported. The larger the machinery investment, the larger the duty saved.

Against that saving, the exporter takes on an export obligation equal to six times the duty saved, to be completed within six years from the date the authorisation is issued. As one summary of the scheme puts it, "there is a compulsion on the business to bring in foreign currency which is equal to 600 per cent of duty saved."

This specific export obligation is in addition to the average export obligation. The exporter must also maintain, in each year, the average level of exports of the same product achieved over the preceding three licensing years. The two obligations run in parallel.

What capital goods are covered?

The scheme covers capital goods as defined in the Foreign Trade Policy, including:

• Capital goods used for pre-production, production and post-production.
• Spares, moulds, dies, jigs, fixtures, tools and refractories.
• Computer systems and software that are part of the capital goods.
• Catalysts for the initial charge plus one subsequent charge.

The imported goods must have a clear nexus with the export product to be manufactured or the service to be rendered, which is why a chartered engineer's certificate is required.

How to apply for an EPCG authorisation

1. Obtain an Importer Exporter Code (IEC) from the DGFT if you do not already hold one, and ensure your GST registration and RCMC are in place.
2. Log in to the DGFT portal at dgft.gov.in and open the EPCG application under the services menu.
3. Fill in application form ANF-5B, entering details of the capital goods to be imported, the export product or service, and the duty-saved calculation.
4. Attach the supporting documents, chartered engineer certificate, chartered accountant certificate, proforma invoice and RCMC — and pay the application fee online.
5. Submit the application. The DGFT issues the EPCG authorisation electronically, after which the capital goods can be imported at zero customs duty.
6. Report fulfilment of the export obligation online on the DGFT portal, for both the specific and the average export obligation, and apply for redemption once the obligation is complete.

What are the compliance obligations?

Holding an EPCG authorisation is a continuing commitment, not a one-time concession. The holder must:

• Fulfil the specific export obligation of six times the duty saved within six years.
• Maintain the average export obligation each year over the block period.
• Install the capital goods at the location declared in the authorisation and produce an installation certificate.
• Submit periodic reports to the DGFT and apply for redemption of the authorisation on completion.

If the export obligation is not met, the exporter must pay the proportionate customs duty saved along with interest of 15 per cent per annum, and may face further action under the customs and foreign trade laws. Because of these consequences, EPCG suits firms with a genuine, sustained export pipeline rather than one-off importers.

Domestic sourcing option

The scheme also permits sourcing capital goods from domestic manufacturers instead of importing them. Where an EPCG holder procures capital goods indigenously, the domestic supplier is treated as having made a deemed export, and the EPCG holder's export obligation is reduced. This provision is intended to encourage demand for Indian-made capital goods while still supporting the exporter's modernisation.

How EPCG fits with other export incentives

EPCG is one of several schemes under the Foreign Trade Policy, and it works differently from most of the others. Schemes such as the Remission of Duties and Taxes on Exported Products (RoDTEP) or duty drawback reimburse taxes after an export takes place. EPCG, by contrast, gives an upfront concession on the import of capital goods and then requires exports to justify it over the years that follow.

This makes EPCG most suitable for a firm that is about to make a substantial investment in new machinery and is confident of exporting at scale for several years. A trader importing finished goods for the domestic market, or a firm with uncertain export prospects, gains little from EPCG and takes on real risk, because an unmet obligation converts the concession into a duty liability with interest.

An important design feature is that the scheme allows the capital goods to be sourced either from abroad, at zero customs duty, or from domestic manufacturers. Encouraging the second option is deliberate: it channels demand towards Indian capital-goods makers while still supporting the exporter's modernisation, and it comes with a reduced export obligation for the EPCG holder.

Validity and the export-obligation period

An EPCG authorisation comes with defined timelines. Broadly, the authorisation carries a validity period for importing the capital goods, and a longer period for fulfilling the export obligation. The specific obligation of six times the duty saved is to be met within six years of issue. Extensions of the export-obligation period can be sought in defined circumstances, usually against a composition fee, and the exact rules are set out in the Handbook of Procedures.

Because these periods, fees and any relaxations are revised from time to time through public notices, an exporter should read the current Handbook of Procedures alongside the authorisation, and track the running balance of both the specific and the average export obligation on the DGFT portal so that the redemption application can be filed on completion.

Help and where to verify

• DGFT toll-free helpline: 1800-111-550 or 1800-572-1550
• DGFT portal: dgft.gov.in, for the EPCG application, the Foreign Trade Policy 2023 and the Handbook of Procedures

Because the precise export-obligation rules, duty rates and procedural forms are revised from time to time through the Foreign Trade Policy and public notices, exporters should confirm the current position on the DGFT portal or with a licensed customs and foreign trade consultant before committing to an authorisation.