EPCG Scheme Benefits (2026): A Guide for Indian Exporters

Updated for the Foreign Trade Policy 2023, current as of 2026.

The Export Promotion Capital Goods (EPCG) scheme lets an Indian exporter import capital goods, such as machinery, equipment, tools, spares and moulds, at zero basic customs duty.

In return, you take on an export obligation: you must export goods or services worth six times the duty you saved, within six years of the authorisation being issued.

Here is what it comes down to:

• Zero basic customs duty on eligible capital goods at import.
• Export obligation: exports worth 6x the duty saved, over 6 years (4.5x if you source the goods from an Indian manufacturer).
• A separate average obligation: you must keep up your prior three-year export average on top of the 6x.
• Who qualifies: manufacturer exporters, merchant exporters and service providers (including IT/ITeS) holding an IEC.
• How it closes: DGFT issues an Export Obligation Discharge Certificate (EODC) once you evidence, via a foreign inward remittance certificate, that the exports were realised.

The core benefit is cash flow.

Instead of paying customs duty (and, where the exemption is in force, IGST and Compensation Cess) up front on expensive machinery, you defer that cost and pay it back through exports you were likely to make anyway.

For a growing exporter, that frees up working capital at exactly the point capital equipment is being bought.

The scheme is run by the Directorate General of Foreign Trade (DGFT) under the Foreign Trade Policy.

It is open to manufacturer exporters, merchant exporters tied to a supporting manufacturer, and service providers, including IT and ITeS firms, as long as you hold an Importer Exporter Code (IEC) and earn foreign exchange.

Once the obligation is met, DGFT issues an Export Obligation Discharge Certificate (EODC) and closes the licence.

Below is a plain-English walkthrough of the benefits, the obligation mechanics, who qualifies, and the one thing most guides skip: how you actually prove your exports so the licence closes cleanly.

The headline benefit is a duty exemption on capital goods, but there are several worth separating out.

• Zero customs duty: You import eligible capital goods, machinery, equipment, tools, spares and moulds, at zero basic customs duty. Where basic customs duty on machinery commonly sits around 7.5 percent plus surcharge, that is lakhs to crores kept in your business rather than paid to customs on day one.
• Improved cash flow: The duty you would have paid at import stays in the business as working capital for operations, hiring and growth, instead of leaving on day one, at exactly the point you are investing to grow exports.
• Domestic sourcing advantage: Buy the capital goods from an Indian manufacturer and your specific export obligation drops by 25 percent, from six times to 4.5 times the duty saved. The domestic supply is treated as a deemed export, so the GST on it is refundable.
• Technology upgradation: The scheme lets you bring in newer, more productive plant, machinery and computer systems you might otherwise defer, to meet international quality standards and stay competitive.
• Support for MSMEs and startups: By removing the customs-duty hit on capital goods, EPCG lowers the entry cost for smaller and newer exporters to buy serious equipment and scale into export markets, not just large manufacturers.
• Broad coverage: Capital goods, spares, tools, jigs, fixtures, dies, moulds and computer software all qualify. EPCG covers new capital goods only; second-hand capital goods are not permitted under the Foreign Trade Policy 2023.

These sit alongside other schemes. If you are mapping the full set, our guide to export incentives covers how EPCG, RoDTEP, Advance Authorisation and SEIS fit together.

Think of it as a duty loan repaid in exports. The government waives the customs duty on your machinery today.

In exchange, you promise to export enough over the next six years that the country earns back several times that waived duty in foreign exchange. Meet the promise, and the duty is written off for good.

Miss it, and you repay the shortfall with interest.

Eligibility is wider than most people assume. You can apply if you are:

• A manufacturer exporter, with or without a supporting manufacturer.
• A merchant exporter linked to a supporting manufacturer named in the application.
• A service provider that earns foreign exchange, which is where IT, ITeS, design, consulting and similar firms qualify.

The common requirements are a valid IEC, registration with the relevant export promotion body where applicable, and the ability to earn and evidence foreign currency. Service exporters who report under export of services under GST rules are squarely inside the tent.

You apply online on the DGFT portal before you import, using form ANF 5A. The process is the same for goods and service exporters; service exporters simply evidence their exports differently. Under the Foreign Trade Policy 2023, the steps are:

1. Get the prerequisites in place: a valid IEC, a Digital Signature Certificate, and a Chartered Engineer certificate in Appendix 5A format confirming the capital goods and their nexus to your export product or service.
2. File the EPCG application in form ANF 5A on the DGFT portal, with the proforma invoice for the capital goods.
3. Pay the application fee, scaled to the duty you are saving at Rs 1 per thousand, that is 0.1 percent of the duty saved, subject to a minimum of Rs 500 and a maximum of Rs 1,00,000.
4. Receive the EPCG authorisation, then import the capital goods within the 24-month import validity at zero basic customs duty, executing the bond and the bank guarantee or Legal Undertaking that customs requires.
5. Fulfil the export obligation, six times the duty saved over six years, or 4.5 times if you source the goods domestically, block-wise, while maintaining your average export obligation.
6. Apply for the EODC once both obligations are met, submitting proof of exports and realised foreign exchange, then redeem the bond with customs.

There are two obligations running at the same time, and missing this is the most common trap.

Specific Export Obligation (SEO): exports worth six times the duty saved, achieved over six years from the date of authorisation.

It is fulfilled block-wise: 50 percent in the first block (years one to four) and the balance 50 percent in the second block (years five and six).

Average Export Obligation (AEO): you must also maintain your historical average exports, calculated on the average of the preceding three licensing years, for the same period. The AEO is separate from and in addition to the SEO.

Your normal export baseline has to keep going while the 6x is layered on top.

Both are measured in realised foreign exchange, not invoices raised, and monitored through EDPMS vs IDPMS reporting. That distinction matters, because DGFT wants proof the money actually landed.

The formula is straightforward: Specific Export Obligation = 6 times the basic customs duty saved, or 4.5 times if you source the capital goods from an Indian manufacturer, to be realised in free foreign exchange within six years. Your average export obligation runs on top.

Here is a labelled worked example for a services exporter.

The 7.5 percent is only an illustration: the basic customs duty on capital goods in India commonly sits in a low single-digit-to-modest range, so confirm the exact rate for your goods.

On this ₹30 lakh of duty saved, you need ₹1.8 crore of foreign-exchange export earnings to reach your account over six years, evidenced payment by payment.

For an IT firm billing overseas clients, that is a realistic figure across six years, but only if every foreign inward remittance is documented as it lands.

This is a genuine decision with a number attached, and most explainers bury it.

If a capable Indian manufacturer can supply the same machine, domestic sourcing cuts your obligation by a quarter and reduces the risk of a shortfall later. Weigh it against price and specification before you file.

Yes. This is where the confusion is thickest and where the answer matters most for software and ITeS businesses.

If you earn foreign currency and hold an IEC, you can import servers, workstations and related equipment under EPCG and count your foreign-exchange service earnings toward the obligation.

The catch is evidence. A goods exporter proves exports with a shipping bill.

A software or services exporter has no shipping bill, so you evidence exports through SOFTEX filing, inward remittance, and the correct RBI purpose code, typically P0802 for software implementation and consultancy.

What DGFT ultimately wants to see is realised foreign exchange in your account.

This is the same realisation trail that DGFT monitors for FEMA. Getting it right once serves both your EPCG file and your wider compliance.

The scheme exempts basic customs duty on the import.

Whether IGST and Compensation Cess are also exempt depends on the notification in force at the time, as this exemption has been extended by the government in stages, so confirm the current position with your customs broker or CA before you import.

This is not tax advice; check the live DGFT and CBIC notifications for your import date.

The Export Obligation Discharge Certificate (EODC) is DGFT's formal sign-off that you have met both the specific and average obligations. It closes the licence and makes the duty saving permanent.

To get it, you submit proof of exports and, critically, proof that the foreign exchange was realised.

For service exporters, that proof is your foreign-currency receipts: the bank realisation certificate explained (eBRC), the FIRC, and the Foreign Inward Remittance Advice. Weak or missing realisation documents are the single biggest cause of delayed EODCs and penalty notices.

If you fall short, you repay the proportionate customs duty saved on the unfulfilled portion, plus interest at 15 percent per annum. The licence is not discharged until you clear it.

For example, if you met only half of an obligation tied to Rs 30 lakh of duty saved, you would repay about Rs 15 lakh plus 15 percent annual interest running from the date of import.

There are provisions to apply for an extension of the export obligation period in defined circumstances, but the underlying duty and interest liability does not disappear.

This is the part exporters on forums worry about most, and rightly so. The scheme is not advisable if your export volumes are uncertain or your sales are mostly domestic, because the downside is a real cash liability plus interest.

• Your future export volume is genuinely uncertain.
• Most of your revenue is domestic, so hitting 6x is a stretch.
• The paperwork and six-year monitoring burden outweighs the duty saved on a modestly priced machine.
• You cannot reliably document foreign-exchange realisation over the full period.

A related route worth comparing is the EOU export oriented unit scheme, which suits businesses exporting substantially their entire output.

EPCG is one of several export incentive schemes, and they solve different problems. Use EPCG for capital goods; the others cover inputs, refunds or embedded taxes, and you can often combine them.

In short, EPCG is for the machinery you buy once; Advance Authorisation covers the inputs that go into your product; and RoDTEP and Duty Drawback recover taxes and duties on what you ship out. Most exporters run EPCG together with RoDTEP.

The authorisation is generally valid for 24 months for effecting the imports of capital goods. The export obligation period runs for six years from the date of issue of the authorisation.

The two clocks are different: one governs when you must import, the other when you must complete your exports.

Every benefit above hinges on one thing DGFT insists on: proof that your export earnings actually reached India in free foreign exchange. The obligation is discharged by realised proceeds, not invoices.

So the way you receive money quietly decides how painful your EODC filing will be.

This is where clean receiving accounts help. When each overseas payment lands with an auto-generated eFIRA and the correct purpose code attached, you build the realisation paper trail as you go, rather than reconstructing six years of bank statements the week before your EODC is due.

Xflow does not file EPCG applications or issue EODCs; that is DGFT's job, and you will still work with your CA. What Xflow provides is the receiving rails and the realisation documentation.

As a payments platform holding final PA-CB (Payment Aggregator Cross-Border) authorisation from the RBI for both exports and imports (as of February 2026), it settles funds to your Indian bank account, typically on a next-business-day (T+1) basis, and issues the eFIRA for each inbound payment.

For an ITeS exporter using EPCG, that turns the scariest part of the scheme, proving 6x over six years, into a by-product of simply getting paid.

• Valid IEC and, where needed, registration with your export promotion council.
• Capital goods identified, with a decision on import vs domestic sourcing (6x vs 4.5x).
• Clear view of your prior three-year export average (your AEO baseline).
• A realistic plan to hit 6x in realised foreign exchange over six years, block-wise.
• SOFTEX and purpose code P0802 process set up if you are a services exporter.
• A receiving setup that auto-generates FIRC/eBRC and eFIRA for every payment.
• A CA or DGFT consultant engaged for the application and EODC filing.