EPCG Scheme Under FTP 2023
Zero-duty machinery against six times the duty saved, exported within six years.
The Export Promotion Capital Goods (EPCG) scheme lets a business import machinery and other capital goods at zero customs duty, in return for a promise to export a multiple of the duty it saved. It sits in Chapter 5 of the Foreign Trade Policy (FTP) 2023 and aims to raise the quality and competitiveness of Indian manufacturing.
Advance Authorisation covers inputs that go into the export product. EPCG covers the plant that makes it. The bank's interest is the same in both: the obligation is discharged by realised exports, so export realisation records decide whether the holder gets its discharge certificate.
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The Scheme in Working Terms
- What is exempted
- Customs duty on capital goods (except those in the negative list, Appendix 5F) for pre-production, production and post-production. For physical exports, IGST and Compensation Cess on the import are also exempt.
- What counts as capital goods
- Capital goods including CKD/SKD forms, computer systems and software forming part of them, spares, moulds, dies, jigs, fixtures, tools and refractories, and catalysts for the initial charge plus one subsequent charge.
- Who can hold it
- Manufacturer exporters with or without supporting manufacturers, merchant exporters tied to supporting manufacturers, service providers, and Common Service Providers certified in a Town of Export Excellence or PM MITRA park.
- Actual user condition
- Imported capital goods stay under the actual user condition until the export obligation is completed and the Export Obligation Discharge Certificate (EODC) is granted.
The Export Obligation, by the Numbers
| Condition | Position under FTP 2023 |
|---|---|
| Specific export obligation | 6 times the duties, taxes and cess saved on the capital goods |
| Period to fulfil it | 6 years from the date of issue of the authorisation |
| Block-wise schedule | At least 50% in years 1-4; the balance in years 5-6 (HBP para 5.13) |
| Import validity | 24 months from the date of issue; no revalidation |
| Indigenous sourcing of capital goods | Specific EO is 25% less than the normal EO |
| Green Technology Products | Specific EO is 75% of the normal EO |
| Units in the North East, J&K and Ladakh | Specific EO is 25% of the normal EO |
Specific EO and Average EO Are Two Separate Tests
The specific export obligation is the 6x figure tied to the duty saved. On top of it sits the Average Export Obligation (AEO): the holder must keep exporting at least the average it achieved in the preceding three licensing years for the same and similar products, every financial year, until the EO is complete. Only exports above that average count towards the specific obligation.
A worked example: if duty saved on a machine is ₹10 lakh, the specific EO is ₹60 lakh of exports over six years, with at least ₹30 lakh in the first four. If the unit's historic average is ₹2 crore a year, the ₹60 lakh must come on top of that ₹2 crore. Exporters in sectors such as handicrafts, handlooms, agriculture, carpets, coir and jute are exempt from the average obligation (para 5.12).
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What Counts Towards Fulfilment
- check_circlePhysical exports of goods made by the holder or its supporting manufacturer, or services rendered by it, exported directly or through third parties.
- check_circleDeemed export supplies, which also earn deemed export benefits under para 7.03.
- check_circleExports that also claim Advance Authorisation, DFIA, duty drawback, RoSCTL or RoDTEP benefits.
- check_circleRoyalty received in freely convertible currency and foreign exchange received for R&D services.
- check_circleRupee payments for services notified in Appendix 5D, and export proceeds realised in Indian Rupees that the FTP treats as export realisation (para 2.53, as revised in August 2026).
Early Fulfilment Is Rewarded
If the holder fulfils 75% or more of the specific EO and 100% of the average EO in half the original period or less, the remaining obligation is condoned and the authorisation redeemed (para 5.09). Only one of the reduced-EO benefits (indigenous sourcing, early fulfilment, green technology, North East and J&K/Ladakh) can be claimed on a single authorisation.
How CCFE Tests This
Questions ask for the multiple (6 times), the period (6 years), or the block share (50% in the first four years). The traps: calculating EO on the CIF value of the machine instead of the duty saved; reading "25% less" for indigenous sourcing as "25% of", which is the North East figure; and forgetting that the average EO must be maintained alongside the specific EO.
FAQs
What is the export obligation under the EPCG scheme?expand_more
Exports equal to 6 times the duties, taxes and cess saved on the capital goods, to be fulfilled within 6 years from the date of issue of the authorisation, in addition to any average export obligation.
What is block-wise fulfilment under EPCG?expand_more
At least 50% of the specific export obligation must be met in years 1-4 from the date of issue, and the balance in years 5-6, under para 5.13 of the Handbook of Procedures.
Can capital goods under EPCG be bought in India?expand_more
Yes. The holder can source capital goods from a domestic manufacturer through an Invalidation Letter or Advance Release Order, and the specific export obligation is then 25% lower.
Can a merchant exporter use EPCG?expand_more
Only if tied to a supporting manufacturer, whose name must be endorsed on the authorisation before the capital goods are installed at its premises.
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