EPCG (Export Promotion Capital Goods) Licence

The EPCG scheme allows Indian exporters to import capital goods — machinery, plant, equipment, tools, dies, moulds, spares — without paying Basic Customs Duty (BCD) at the time of import, provided they commit to export goods or services worth at least six times the duty saved over a period of six years. The benefit is a direct upfront cash saving on the capital investment — the duty that would otherwise be paid to Customs is instead channelled into creating additional export capacity.

For EPCG purposes, capital goods include: new or second-hand machinery, plant and equipment, accessories, tools, jigs, fixtures, moulds, dies, and related spares (up to the limit prescribed in the licence conditions) that are used for manufacturing or service provision for export. Capital goods do not include: inputs or raw materials consumed in the manufacturing process (those are covered by Advance Authorisation); office equipment used for general administration not directly related to export production; personal computers used for non-manufacturing purposes; and goods explicitly placed on the Negative List under the relevant Customs Notifications. The FTP and Handbook of Procedures define the eligible categories — PNPC confirms the specific goods' eligibility before the application.

The Export Obligation is computed as: EO = 6 × (BCD foregone on CIF value of capital goods imported under the licence). For example, if you import capital goods with a CIF value of ₹5 crore and the applicable BCD rate is 7.5%, the BCD foregone is ₹37.5 lakh. Your EO is 6 × ₹37.5 lakh = ₹2.25 crore in FOB export value, to be fulfilled within 6 years. The EO is expressed in Indian Rupees (FOB value of exports). Exports under any shipping bill from the licensed premises may count toward the EO — the exports do not need to be of the specific product made by the imported machinery, in most cases.

Generally, yes — the Export Obligation can be fulfilled by exports of any goods manufactured in the same factory or by any services rendered from the licensed premises, subject to the general condition that the exports are under valid shipping bills citing the manufacturing / service IEC. The FTP does not restrict the EPCG EO to exports of only the specific product made by the EPCG machinery, in most standard cases. However, certain EPCG licences for specific sectors (gems and jewellery, for example) may have sector-specific EO conditions. Deemed exports — supplies to EOUs, supplies against ICB tenders, supplies to mega power projects — also count toward the EO under specific FTP provisions.

At the time of registering the EPCG licence with Customs, the importer must furnish a Bank Guarantee (BG) from a scheduled bank in India for the full amount of BCD foregone (i.e., the entire duty saving). The BG is the Customs collateral — it can be invoked if the EO is not fulfilled and the duty becomes payable. The BG remains locked until DGFT issues the Export Obligation Discharge Certificate (EODC) and Customs formally releases it. The BG is a contingent credit facility from the bank — it reduces the company's net available credit from its bank and may require a cash margin or collateral with the bank depending on the facility.

After importing the capital goods under the EPCG licence, the importer must: (a) install the capital goods at the premises declared in the licence application; (b) obtain a Certificate of Installation signed by the company's Statutory Auditor (Chartered Accountant) certifying installation and that the goods are being used for export production; and (c) obtain a Chartered Engineer certificate certifying the technical installation and use. Both certificates must be filed with the DGFT Regional Authority that issued the EPCG licence, within the prescribed period. The FTP mandates this filing as a condition of the EPCG scheme.

Yes. The FTP permits import of second-hand capital goods under EPCG, subject to the condition that the goods have a minimum residual life of 10 years from the date of importation. Evidence of residual life must be provided through: (a) a valuation certificate from an independent valuer (Chartered Engineer or Government-approved valuation expert) confirming the CIF value of the second-hand goods; and (b) a Chartered Engineer certificate certifying the residual life is at least 10 years. The CIF value declared in the EPCG application is the basis for the EO computation — for second-hand goods, Customs may independently assess the value if the declared CIF is considered understated.

Non-fulfilment of the EPCG Export Obligation within the prescribed period (6 years from licence issuance, or the extended period if an extension was granted) has the following consequences: (1) The entire BCD foregone on imports under the licence becomes immediately recoverable by Customs; (2) Interest at 15% per annum on the duty foregone, from the date of each import, is added; (3) DGFT may impose a penalty under the FTDR Act; (4) The Bank Guarantee at Customs is invoked and encashed; (5) The company's DGFT record reflects as a defaulter, affecting future licence applications. On the other hand, partial EO fulfilment is credited — only the proportionate duty on the unfulfilled EO balance is recoverable.

Yes. DGFT can grant extensions to the EPCG Export Obligation period, subject to the application being filed before the original period expires and on payment of a composition fee. The composition fee is a specified percentage of the EO remaining at the time of extension application, calculated per the Handbook of Procedures' composition fee table. Multiple extensions are possible, but each extension requires a fresh application and composition fee. The FTP also provides for specific relaxations in cases of force majeure, government policy changes affecting the export product, or other factors outside the exporter's control.

The Post-Export EPCG scheme (introduced under FTP 2023 and its predecessors in concept) allows an exporter who has already made exports — in the preceding 2 years in many categories — to apply for an EPCG licence retrospectively, treating those prior exports as fulfillment of the Export Obligation. On approval of the post-export EPCG, the importer pays the normal BCD on the capital goods upfront but receives a duty remission/credit equivalent to the duty that would have been waived, netted against the EO already discharged. This option is available where the EO can be demonstrated as already met by prior exports. It provides a duty recovery mechanism for exporters who imported capital goods before they were aware of or opted for EPCG.

The RCMC required for an EPCG application is from the Export Promotion Council or Commodity Board relevant to the export product(s) that will be used to fulfill the Export Obligation. For engineering goods exporters: EEPC India. For chemicals / pharmaceuticals: CHEMEXCIL or Pharmexcil. For textiles: AEPC (apparel) or Texprocil (cotton). For agriculture: APEDA. For general merchandise merchants and service exporters without sector-specific EPCs: FIEO (Federation of Indian Export Organisations). For software and IT services: NASSCOM or STPI registration may substitute. The RCMC must cover the HS codes of the export product and must be current (valid for the application year).

Yes. The EPCG scheme explicitly covers service exporters. Hotels may import capital goods (kitchen equipment, furniture, refrigeration, laundry equipment) for use in hospitality services provided to foreign tourists — whose expenditure in foreign currency qualifies as a deemed export of services. Hospitals may import medical devices and surgical equipment for services rendered to international patients. Software and IT companies may import servers, networking equipment, and related capital goods for export-oriented software production. Tour operators may import vehicles used exclusively for foreign tourist services. The EO for service exporters is measured in foreign exchange earnings from the specified services.

Under the current position (confirmed through specific Customs exemption notifications aligned with the GST regime), imports of capital goods under a valid EPCG licence are exempt from Basic Customs Duty and also from IGST (Integrated GST) on imports — provided the applicable Customs notification exempting IGST is in force for the specific goods at the time of import. However, the IGST position must be verified from the specific Customs Notification applicable at the time of each import — notifications can be amended. Where IGST is paid (either because the notification does not cover the goods or because the BG is only for BCD), the IGST can be taken as ITC under GST if the conditions for ITC on capital goods are met.

Yes. An EPCG licence can be amended after issuance through an application to the issuing DGFT Regional Authority. Common amendments: addition of capital goods not included in the original licence (requires a new EO calculation for the added goods); change in the port of import (requires Customs re-registration); revision of the installation address (if the factory address changes); change in the IEC details due to a business restructuring. Minor amendments may be processed administratively; additions to the capital goods list effectively create an enhanced licence with a higher EO.

Yes. Under FTP 2023, the Export Obligation under an EPCG licence can be fulfilled not only by physical exports (actual shipment to overseas buyers) but also through deemed exports, which include: supply to Export Oriented Units (EOUs); supply to projects financed by multilateral or bilateral agencies; supply against International Competitive Bidding (ICB) tenders; supply to categories notified under the deemed export provisions of the FTP. Deemed exports are counted at the invoiced value as the EO equivalent. The documentation for deemed exports differs from physical exports — instead of shipping bills and BRCs, the relevant deemed export documentation (back-to-back invoices, EOU acknowledgements) substitutes.

EPCG is for importing capital goods — the machinery and equipment that produce the export goods. Advance Authorisation is for importing inputs — the raw materials, components, and packing materials that are physically incorporated into the export goods. An exporter needs to import both? Both schemes can be used simultaneously — EPCG for the machinery, AA for the inputs. They cover different import categories and have separate Export Obligations. The key difference: EPCG has a 6-year EO period; AA has an 18-month EO period. EPCG is measured on the factory's total export output; AA is measured on exports of the specific product made using the AA inputs. For capital-goods-heavy industries (auto components, engineering, food processing), EPCG is often the more significant scheme; for input-intensive industries (textiles, chemicals), AA is often the primary tool.

Under the standard EPCG provisions, there is an average Export Obligation requirement: the EO must be fulfilled at an average rate of at least one-sixth per year (i.e., the total 6-year EO divided by 6). This means that by the end of each year, the cumulative exports should have met roughly the proportionate share of the total EO. Block EO shortfalls in early years can be made up in later years within the 6-year period — but if the annual average block is significantly unmet in the early years, it can attract DGFT scrutiny. Under FTP 2023, specific relaxations to the annual EO average requirement exist for MSME units and for licences issued during specific policy periods.

The Foreign Trade (Development and Regulation) Act 1992 (FTDR Act) provides for penalties for export obligation default. Under Section 11 of the FTDR Act, the DGFT can impose a fine up to twice the CIF value of the goods imported for non-compliance. In practice, for EPCG EO defaults, the primary financial consequence is duty recovery plus 15% interest per annum — which is imposed under the Customs Act. In addition, the Director General of Foreign Trade can suspend or cancel the IEC of a defaulting entity, which effectively prevents all future imports and export-related DGFT benefit applications. IEC suspension is the most operationally damaging consequence — it can paralyse an exporting business entirely.

Generally, no — and it would not be beneficial. EOUs operate under a separate duty-free import scheme (the EOU scheme under Chapter 6 of the FTP), which already permits duty-free import of capital goods and inputs for export production. Using EPCG on top of the EOU scheme would create a dual Export Obligation — the EOU Net Foreign Exchange (NFE) requirement and the EPCG EO — and would complicate the compliance structure. EOUs should import capital goods under the EOU scheme. Entities that are considering EOU status but have not yet registered should be aware that the EPCG and EOU schemes are essentially parallel and should not be stacked.

Yes. The gems and jewellery sector has specific EPCG provisions under the FTP. Jewellery manufacturers may import capital goods (electroplating machines, stone-setting equipment, polishing machinery, CAD/CAM systems) at zero BCD under EPCG. The sector-specific conditions relate to: the type of capital goods eligible, the measurement of exports (since jewellery exports include a high gold content that may be excluded from the EO computation), and specific norms applicable to Gems and Jewellery Export Promotion Council (GJEPC) members. GJEPC-issued RCMC is required for gems and jewellery EPCG applications.

PNPC's EPCG engagement covers the complete lifecycle: pre-application eligibility check and EO computation; DGFT ANF 5A application preparation and filing; DGFT RA query response; licence review on issuance; Customs registration co-ordination with the company's CHA; import monitoring and BE review co-ordination; installation certificate issuance (CA component); EO tracking register maintenance with annual reports; EO extension applications if needed; DGFT redemption filing; BG release co-ordination; and complete file archiving for 5 years post-closure. The engagement continues for the full 6-year EO period and beyond — not just the application stage.

No. An EPCG licence is non-transferable. It is issued specifically to the IEC holder (the applicant entity) and is tied to their manufacturing / service premises. The capital goods imported under the licence must remain installed at the declared premises — they cannot be sold, leased, or transferred to another party without DGFT approval. In cases of genuine business restructuring (merger, demerger, acquisition), DGFT may permit a transfer of the licence and its associated EO to the successor entity, but this requires a formal application and DGFT RA approval. Unilateral transfer without approval constitutes a violation of the licence conditions.

Under a valid EPCG licence and the applicable Customs exemption notifications, the Basic Customs Duty (BCD) is zero at the time of import. In addition, the position on IGST depends on the specific exemption notification applicable to the goods and the time of import — for most capital goods categories under EPCG, IGST is also exempt under the linked GST/Customs notification. Social Welfare Surcharge (SWS) is levied as a percentage of BCD — if BCD is zero, SWS is effectively nil. Safeguard Duty, where applicable to specific goods, may still apply even under EPCG unless specifically excluded. Customs handling charges and port charges are payable regardless — the EPCG exemption applies only to duty elements, not service charges.

If the company closes down or enters insolvency during the EPCG EO period, the entire duty foregone on EPCG imports becomes immediately recoverable by Customs — plus interest. The Bank Guarantee is invoked by Customs. In an insolvency resolution under IBC, the EPCG-related duty claim is a Customs department claim and is treated as a government dues claim — its priority depends on the waterfall under IBC provisions. For the promoters/directors, the EPCG compliance risk does not automatically create personal liability (unlike certain tax liabilities), but the BG invocation affects the company's creditors and potentially the personal guarantors of the BG.

There is no statutory limit on the number of EPCG licences a single IEC holder can hold simultaneously. Large manufacturing companies may have multiple EPCG licences active across different manufacturing lines, different import episodes, or different imported equipment sets. Each licence has its own EO, its own EO period (running from that licence's issuance date), and its own Bank Guarantee at Customs. The aggregate EO across all licences must be tracked carefully — the total exports from the premises may be distributed across multiple EO obligations.

Yes, RCMCs issued by Export Promotion Councils are typically valid for 5 years (from the April of the year of issuance), subject to annual fee payment and updates. If the RCMC lapses during the EPCG EO period, it does not invalidate the existing EPCG licence — the RCMC was required at the application stage. However, a lapsed RCMC can create problems if you need to file any DGFT amendment application, an extension application, or a redemption application during the lapse period — DGFT may require the RCMC to be current for these filings. Annual renewal of the RCMC is therefore good practice throughout the EPCG lifecycle.

No. The Export Obligation must be fulfilled by the EPCG licence holder itself — the specific IEC holder in whose name the licence was issued. Exports made by a parent, subsidiary, sister concern, or group entity under their own IEC cannot be counted toward another entity's EPCG EO. Each EPCG licence is tied to the specific IEC, and EO fulfillment is verified against the shipping bills filed under that specific IEC. However, if the licence holder is a manufacturer-exporter who exports through a merchant exporter, the underlying manufacturer's production is credited only if the shipping bills are filed with the manufacturer's IEC cited as the manufacturer on the shipping bill.

PNPC maintains a live EPCG compliance file containing: (1) the original EPCG licence and all amendments; (2) the ANF 5A application and all DGFT correspondence; (3) Bills of Entry for each import under the licence (with the EPCG number cited); (4) the installation certificate (CA + Chartered Engineer); (5) an EO register tracking EO required, exports credited, EO balance, and time remaining — updated at least annually; (6) shipping bills for all EO-fulfilling exports, with corresponding FIRCs/BRCs; (7) any extension applications and DGFT extension orders; (8) the final redemption application and EODC; and (9) the BG release confirmation from Customs. The file is retained for 5 years post-closure.

A Duty-Free Import Authorisation (DFIA) is a post-export benefit under Chapter 4 of the FTP — it is issued based on exports already made. The DFIA covers inputs (raw materials and packing materials), not capital goods, and is akin to a transferable version of Advance Authorisation for post-export scenarios. EPCG, by contrast, is a pre-export benefit for capital goods — the licence is obtained before the imports and the EO is fulfilled over 6 subsequent years. The DFIA allows the credit to be transferred to another party (making it tradeable), while EPCG is non-transferable. These are fundamentally different instruments: DFIA for input duty recovery post-export, EPCG for capital goods duty saving pre-export.

Entities operating within Special Economic Zones (SEZs) are governed by the SEZ Act 2005 and its rules, which provide a comprehensive duty-free regime for imports within the SEZ. SEZ units are not eligible to use the DGFT-administered FTP schemes including EPCG — their capital goods and input imports are handled under the SEZ framework. DTA (Domestic Tariff Area) units that supply to SEZ units may use EPCG for their own capital goods imports, treating supplies to SEZ units as deemed exports for EO purposes, subject to the deemed export documentation requirements.

A Customs House Agent (CHA) manages the port-level customs formalities — Bills of Entry, customs duty payment, import documentation at the port. They are not set up to handle DGFT applications, HS code classification for EPCG eligibility, EO computation, ANF 5A filing, DGFT RA query responses, installation certificate preparation, annual EO monitoring, extension applications, or DGFT redemption proceedings — all of which require familiarity with the FTP, Handbook of Procedures, FTDR Act, and DGFT portal processes. Additionally, the statutory CA certification required for the Installation Certificate must be issued by the company's Chartered Accountant — a CHA cannot provide this. PNPC, as a practising CA firm with specific FTP competence, manages the DGFT lifecycle end-to-end, co-ordinates with the CHA for customs filings, provides the installation CA certificate, and handles the GST/Customs duty interface.

Yes. The Foreign Trade Policy and its successive Handbooks of Procedures have provided specific relaxations for MSME exporters under EPCG. The most significant relaxation is that the Export Obligation for MSME units is computed at a lower multiple or subject to sector-specific concessional norms — making the EO more achievable for smaller exporters with lower absolute export volumes. Additionally, MSME units may be eligible for extension of EO period on less onerous composition fee terms. The precise MSME relaxations are as notified in the current Handbook of Procedures — PNPC verifies the applicable relaxation at the time of application based on the client's current Udyam Registration status.