EPCG Scheme: Key Benefits for Exporters in India

What's holding you back from expanding exports: old machinery or through-the-roof import duties?

With the EPCG Scheme, you can replace machinery without the financial burden. By enabling exporters to import capital goods at zero or concessional duty, it keeps initial costs low.

In this blog, we'll look at how the scheme functions, its advantages for exporters, and practical tips to maximize its potential, so you can invest, produce on a large scale, and remain competitive in the world.

The EPCG Scheme is a government scheme that allows exporters to import capital goods, such as machinery, equipment, or technology, at zero/customs duty exemption. In return, the exporter commits to achieving an export target, generally six times the duty foregone, within a span of six years.

Why does this matter? Because capital goods are expensive. For most companies, the duty on imports alone would break or make the investment equation. With EPCG, that barrier falls, and it becomes simple to change technology, reduce production expenses, and remain competitive in the international arena.

If you default on the EPCG export obligation (6× duty saved, 6-year window), the saved duty (along with interest) turns into a liability. So, the scheme rewards good planning and disciplined execution.

So, how exactly does EPCG work in reality? Let's look at it, step by step:

Application and authorization

First, you apply to the DGFT (Directorate General of Foreign Trade) for an EPCG license. Once granted, this license gives you the green light to import eligible capital goods, machinery, tools, and equipment, at zero/customs duty exemption.

Import of capital goods

With the license in hand, you can bring in the equipment you need for your export business. It could be textile machinery or IT servers, or simply anything that assists you in producing something or providing a service for global markets.

Export Obligation (EO)

Here's the catch: in return for the duty savings, you commit to achieving an EPCG export obligation. Typically, this translates into exporting six times the duty you evaded, and you have six years to do it.

Average Export Obligation (AEO)

You also have to keep your historical average of exports in the form of Average Export Obligation (AEO). That way, the EPCG benefits go to companies that are actually making new exports, not benefiting from old figures.

Proof of compliance

Once you've met your obligations, you go back to DGFT (Directorate General of Foreign Trade) and apply for an Export Obligation Discharge Certificate (EODC). This certificate is the official proof that you've done your part and your duty savings are fully legitimized.

And if you don't?

You'll need to pay back the saved duty along with interest. 

The EPCG Scheme comes with a set of features that shape how it works in practice:

Duty exemption or concession

The big draw is you can bring in capital goods (machinery, tools, molds, testing equipment) duty-free or at concessional customs duty. For firms making large-scale investments, this can mean huge savings upfront.

Broad definition of capital goods

It's not limited to heavy machinery. The scheme extends to machinery, tools, dyes, molds, software, computer systems, and spares. Basically, anything that helps you produce goods or services for export.

Who can apply?

It's not limited to big makers. Both exporter-manufacturers and service exporters can use the scheme. Even merchant exporters qualify, provided they're bound to assisting manufacturers.

Export obligation timeline

The basic principle is easy to understand: you have six years to fulfill an EPCG export obligation, which is six times the duty you saved. So, if you saved INR 1 crore in duty, you'd need to achieve INR 6 crores worth of exports within that time frame.

Indigenous procurement

You don't always have to import. Capital goods can also be imported from within the country, and you still receive the same EPCG benefits. This simplifies things if the machinery you require is already in India.

Validity of license

A license under EPCG is valid for a specific period of importation, normally 24 months. There is no revalidation, so planning your imports accordingly matters.

Compliance requirements

Lastly, this is one scheme where discipline pays. In order to settle your EPCG charges, you'll be required to submit installation proof, shipping documents, and realization certificates. Without appropriate documentation, you can end up losing the EPCG benefits and incurring penalties.

Before you run to apply, here's your checklist:

• IEC (Importer-Exporter Code) copy

• RCMC (Registration-cum-Membership Certificate) from the relevant Export Promotion Council

• Digital Signature Certificate (DSC) of the applicant

• Chartered Engineer certificate justifying the requirement for machinery.

• Proforma invoice or supplier quotation of the capital goods (machinery, tools, molds, testing equipment)

• Self-certified copy of PAN and GST registration

• Application in ANF (Aayat Niryat Form) prescribed by DGFT (Directorate General of Foreign Trade)

• Past export performance records (for AEO compliance)

Let's break down exactly how exporters can gain from the EPCG Scheme, why it's more than just a duty exemption and how it can really boost your business on the global stage:

Reduced cost of capital goods

Importing machinery at zero/customs duty exemption is similar to receiving a head start on your cost of production. You are saving a substantial amount upfront, which means you have available cash to invest in operations, marketing, or research and development of new products rather than shelling out customs duty.

Faster technology upgradation

The world market is on the move, and being competitive involves keeping up with technology. EPCG allows you to import sophisticated equipment that would otherwise be too costly, so you don't lag behind your global competitors.

Improved product quality

Improved machines translate into improved output. Whether you are in textiles, pharma, or engineering, upgraded machinery allows you to consistently deliver international standards of quality. That means less rejection, improved confidence from buyers, and repeat orders.

Global cost reduction & competitiveness

When you reduce expenses and increase quality simultaneously, it's a win-win. You can keep your products affordable and still have healthy margins, making it less difficult to grow in international markets.

Scalability without capital drain

EPCG eases the burden on your finances while scaling up. You can keep up with larger orders, expand into new markets, or diversify your products without being held back by heavy import duties.

Smoother business plan

Yes, there is an EPCG export obligation, but it is crafted to keep pace with your growth. Six years to save six times the duty means there's much scope to strategize without feeling constricted.

Sector-wide flexibility

It's not only for producers. Merchant exporters backing producers and service exporters, such as IT or hospitality, can also gain. That implies the scheme is for businesses of varying sizes as well as in various sectors.

Of course, like most good things, the EPCG Scheme comes with its share of challenges:

Overload of paperwork

Signing up for EPCG and then establishing compliance is not as straightforward as checking a box. From shipping bills to project reports, the stack of documents seems never-ending. Omit one, and holdups or closure is what you'll receive.

Strict compliance rules

If you fail to fulfill the requirement within six years, the saved duty reappears in the form of a bill, bearing interest. Hence, meticulous planning and periodic monitoring are unavoidable.

Average Export Obligation (AEO) pressure

It's not enough to only focus on the new exports tied to EPCG. You also need to maintain your past average export levels. For companies already stretched thin, this can feel like running two races at the same time.

Time-bound imports

The EPCG license has a fixed validity period (ordinarily 24 months for imports). In case your procurement schedule gets delayed, the machinery supplier takes more time to deliver, which means that you may lose the advantage.

Risk of penalties

Non-compliance is not taken lightly. Besides paying duty and interest, companies risk penalties that can impact margins considerably.

Exporters often confuse EPCG with other government schemes. Here’s a quick comparison:

If you're planning to use EPCG, here's how to make it work smoothly:

1.Plan your EPCG export obligation early

Know your 6× duty target before importing machinery. Set realistic timelines and export projections.

2.Have documents in place

Keep the realization certificates, installation proofs, shipping bills, and invoices. Proper documents avoid penalties and save time.

3.Select machinery carefully

Import machinery that has a direct impact on efficiency or quality of the product. Don't invest in low-impact machinery.

4.Monitor exports periodically

Check your export performance against your commitment. Early monitoring allows you to make changes to strategy and escape last-minute pressure.

5.Take advantage of indigenous procurement

If local equipment is available, utilize it. You enjoy EPCG benefits even before imports.

6.Seek advice from DGFT professionals

Regulations and procedures may change. Check for DGFT notifications periodically or take advice from experts to remain compliant.

7.Align EPCG with business growth

Use EPCG strategically by combining it with new product lines or market expansion to maximize ROI.

8.Close the obligation properly

Proceed with the application for the Export Obligation Discharge Certificate (EODC) once you have discharged your obligation. Avoid delays, or face penalties.

EPCG can give your exports a turbo boost, but only when you remain organized. A missed deadline or misplaced document can be expensive. With Xflow, that worry disappears, because of:

• Fast and transparent receivables

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• Simplified compliance and filings

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• Seamless integration

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• Priority support and expert guidance

Need help with complex export processes? We have a dedicated support team available 24/7 to keep your operations running smoothly.