EOU Scheme: Net Foreign Exchange and DTA Sale

EOU Scheme explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

An EOU is often described as a "100% export unit", which is misleading. There is no export target and no minimum export percentage. The only obligation is that, over five-year blocks, exports must exceed the cost of imports — and within that, domestic sale is permitted without any limit.

An EOU "shall be a positive net foreign exchange earner", calculated "cumulatively in blocks of five years, starting from commencement of production", as Positive NFE = A − B > 0, where A is the FOB value of exports and B is "the sum total of CIF value of all imported inputs and CIF value of all imported capital goods, and value of all payments made in foreign exchange by way of commission, royalty, fees, dividends, interest on external borrowings / high sea sales." Incentives include "DTA sale without any limit (including advance DTA sale) on payment of applicable GST and customs duties forgone."

What goes into B

The definition is broad, and the Handbook spells out what is caught:

• CIF value of all imported inputs;
• CIF value of all imported capital goods;
• commission, royalty, fees, dividends, interest on external borrowings / high sea sales paid in foreign exchange, or "any other charges";
• "payment made in Indian Rupees on high sea sales";
• goods obtained from another EOU/EHTP/STP/BTP/SEZ unit, or from an international exhibition held in India, or from bonded warehouses, or precious metals from nominated agencies;
• "Value of imported capital goods financed through leasing companies or obtained free of cost and/or on loan/lease basis."

Two entries surprise people. Dividends paid abroad count against NFE — so a foreign-owned EOU repatriating profits erodes its own NFE. And capital goods obtained free of cost or on lease count at value even though nothing was paid for them.

The four schemes, and what an EOU may do

EOUs are "units that undertake to export their entire production of goods and services (with some permissible sales in the Domestic Tariff Area)", and may be set up anywhere in India. EHTPs cover electronics hardware, STPs software and IT services, and BTPs biotechnology — each in designated zones with approvals through their respective authorities.

Purposes permitted: "Manufacture of goods; Repair; Re-making; Reconditioning; Re-engineering; Rendering of services; Development of software; Agriculture including agro-processing, aquaculture, animal husbandry, biotechnology, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture."

Not permitted: "Trading units."

And second-hand capital goods are allowed "without any age limit… with or without payment of duty/taxes" — a significant relief unavailable under most other schemes.

Leasing is permitted from a domestic or foreign leasing company on a firm contract, and "An EOU may sell capital goods and lease back the same from a Non-Banking Financial Company."

Setting up, and the two validity periods

Approval bodies: EOUs by the Unit Approval Committee chaired by the Development Commissioner of the SEZ; EHTP/STP by an officer designated by MeitY; BTP by an officer designated by the Department of Biotechnology.

Application in Form ANF 6A, three copies to the Development Commissioner, "approved or rejected by Units Approval Committee within 15 days."

Then an LUT with the DC as in Appendix 6E. And a hard condition: "All EOU/EHTP/STP/BTP units should have permanent e-mail address. No LUT for new units shall be executed unless unit has its permanent e-mail address and digital signature on said e-mail ID. In event of an EOU not having , further imports and DTA sale shall not be permitted by DC."

Two clocks on the LoP/LoI:

• Initial validity 2 years "to enable the Unit to construct the plant and install the machinery and by this time the unit should have commenced production" — extendable by one year by the DC for valid reasons, a further year by the Unit Approval Committee, and beyond that by the Board of Approval;
• Once production commences, the LoP/LoI is "valid for a period of 5 years… extended further by DC for a period of 5 years at a time."

Leased premises are allowed — from a Government department, undertaking or agency without restriction; from private parties, the lease "shall have a validity period of five years from date of LUT" and the DC must "satisfy himself of genuine nature of lease."

Conversion from a DTA unit is permitted, but "having an investment of ₹50 crores and above in plant and machinery or exporting ₹50 crores and above annually, shall be placed before BOA for a decision."

DTA sale: unlimited, but reversed

The general rule. Finished goods specified in the LoP — "including by-products, rejects, waste and scraps arising in the course of production" — that are freely importable may be sold in DTA, "subject to fulfillment of positive NFE, on payment of excise duty, if applicable, and/or payment of GST and compensation cess along with reversal of duties of customs leviable under the First Schedule to the Customs Tariff Act, 1975 availed as exemption, if any, on the inputs utilized."

The reversal is computed on norms. "This reversal of customs duty would be as per prevailing SION norms or norms fixed by Norms Committee (where no SION norms are fixed)."

And FTP benefits are given back. "Such DTA sale shall also be subject to refund of any benefits availed by the EOU/supplier as per FTP, on the goods used for manufacture of the goods cleared into the DTA."

The limits and special cases:

Note the GST carve-out on destroyed scrap. Customs duties fall away; GST does not.

Surplus power, unutilised material, and exit

Surplus power. No duty or tax on sale from an EOU/SEZ unit to another EOU/SEZ unit, "subject to GST provisions", with the DC informed in writing. DTA sale needs permission from the Assistant Commissioner of Customs / Central Excise & GST.

Unutilised material may be "transferred to another EOU/EHTP/STP/BTP/SEZ unit, such transfer would be treated as import for receiving unit", or "disposed in DTA with intimation to customs authorities on payment of applicable duties, taxes and cess."

Exit. With DC approval, "subject to payment of applicable duties and taxes saved on imported inputs and capital goods" — dischargeable "through advance authorization and EPCG or in cash." Exit under the prevailing EPCG Scheme for DTA Units requires positive NFE, EPCG eligibility and standard conditions; exit under advance authorisation is available as a one-time option, also subject to positive NFE.

And failure carries a penalty. "If the unit has not achieved the obligations, it shall also be liable to penalty at the time of exit. Further the EOU has to pay the import duties foregone and other benefits like GST (either claimed as refund by EOU or by the supplier)."

Depreciation softens the capital goods position. "Depreciation upto 100% permissible on capital goods. On de-bonding, the duty to be paid on the depreciated value of the capital goods."

The GST position

Supplies from DTA to an EOU are deemed exports. "Goods supplied by the DTA units to EOU shall be regarded as deemed export and GST is to be paid on such supply, however due to deeming fiction either supplier or recipient by taking disclaimer certificate may apply for refund." Deemed exports →

Duty-free import follows "the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017."

EOU to EOU transfer is "treated as any other supply under GST Law."

Job work is under "section 143 of the CGST Act, 2017 and rule 45 of the CGST Rules."

Other facilities: export income exempt from income tax with a sunset clause; duty-free goods other than capital goods to be used within 3 years; export proceeds realised within 12 months with 100% retention in an EEFC account; FDI up to 100%; exemption from industrial licensing for SSI-reserved items; and export through another exporter permitted, though "all export entitlements, including recognition as 'status holder' would accrue to the exporter in whose name the foreign exchange earnings are realized."

Key takeaways

• No export target — only positive NFE = A − B > 0, cumulative over five-year blocks from commencement of production.
• B includes imported inputs and capital goods at CIF, plus commission, royalty, fees, dividends and interest paid abroad, and free-of-cost or leased capital goods.
• Trading units are excluded; second-hand capital goods of any age are permitted.
• LoP/LoI valid 2 years to commence production, then 5 years at a time.
• DTA sale is unlimited subject to positive NFE, on payment of GST and cess plus reversal of customs duty per SION — and refund of FTP benefits availed.
• No DTA sale of pepper, pepper products and marble, or by units doing only packaging, labelling, segregation and similar processes.
• Services 50%, gems and jewellery 10%, rejects 5% outside NFE; destroyed scrap escapes customs duty but not GST.
• Exit requires payment of duties and taxes saved, dischargeable through AA, EPCG or cash, with depreciation up to 100% on capital goods.
• DTA-to-EOU supplies are deemed exports — GST payable, refund to supplier or recipient.

Read next

• MOOWR: Duty Deferment Without an Export Obligation
• Deemed Exports: FTP Para 7.02 Against Notification No. 48/2017
• Status Holder Scheme: Thresholds, Privileges and Double Weightage

Disclaimer: Positions stated as on 5 September 2026, based on Chapter 6 of the Foreign Trade Policy 2023 and the corresponding Handbook of Procedures, Appendices 6A to 6M and Forms ANF-6A to 6C, section 143 of the CGST Act, 2017, rule 45 of the CGST Rules, 2017, Notification No. 48/2017-Central Tax and the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017, as reproduced in the ICAI Handbook on Foreign Trade Policy – Incentives, Schemes & Related FAQs (November 2025, 2nd Edition).