EPCG 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.
The Export Promotion Capital Goods (EPCG) Scheme lets an exporter import capital goods at zero customs duty in return for an export obligation. Paragraph 5.01 of the Foreign Trade Policy, 2023 sets the core numbers: an export obligation of 6 times the duties, taxes and cess saved, to be fulfilled in 6 years from the date of issue of the authorisation (5.01(b)), and a validity for import of 24 months from the date of issue, with no revalidation (5.01(d)). Chapter 5 of the Handbook of Procedures, 2023 adds the application, installation certificate, block-wise fulfilment, extension and discharge procedure. This guide follows the scheme through its stages and points to a detailed article on each paragraph group.
This article is based on the chapter-wise text of the Foreign Trade Policy, 2023 published on the DGFT website, as consulted on 2 October 2026; the copy carries no "updated up to" date. The procedure is taken from Chapter 5 of the Handbook of Procedures, 2023 as published on the DGFT website (file of July 2026), consulted on 2 October 2026. Later Notifications, Public Notices and Trade Notices should be checked before you act. If you are planning a capital goods import and want the obligation reviewed before you apply, our legal consultation service can help.
Paragraph 5.01 allows import of capital goods, except those in the negative list in Appendix 5F, for pre-production, production and post-production at zero customs duty. The authorisation is valid for import for 24 months from issue and cannot be revalidated. The export obligation is 6 times the duties, taxes and cess saved, to be fulfilled in 6 years from issue, together with an average export obligation under paragraph 5.04(c). Indigenous sourcing reduces the specific obligation by 25%; green technology and north-eastern units get lower percentages.
What the scheme covers: paragraphs 5.00 to 5.03
Paragraph 5.00 states the objective: to facilitate import of capital goods for producing quality goods and services and to enhance India's manufacturing competitiveness. Under paragraph 5.01(a), capital goods imported under an EPCG authorisation for physical exports are also exempt from IGST and compensation cess levied under section 3 of the Customs Tariff Act, 1975, as provided in the Department of Revenue notification; the paragraph prints "compensation cess" as shown here, and the present levy should be checked. The holder may alternatively procure capital goods from indigenous sources under paragraph 5.07.
"Capital goods" for the scheme includes (i) capital goods as defined in Chapter 11, including in CKD or SKD condition; (ii) computer systems and software that are part of the capital goods imported; (iii) spares, moulds, dies, jigs, fixtures, tools and refractories; and (iv) catalysts for initial charge plus one subsequent charge. The Handbook adds that an application for items under (iii) and (iv) lists the plant or machinery for which they are required, and that for spares the authorisation names the plant, the duty saved allowed and the export product, rather than listing spares (paragraph 5.06 of the Handbook).
Paragraph 5.02 covers manufacturer exporters with or without supporting manufacturers, merchant exporters tied to supporting manufacturers, and service providers, including a Common Service Provider certified by the DGFT in a Town of Export Excellence or PM MITRA park on the conditions of 5.02(b). Paragraph 5.03 imposes the Actual User condition until the export obligation is completed and the Export Obligation Discharge Certificate (EODC) is granted. See our articles on paragraphs 5.00 and 5.01 and paragraphs 5.02 and 5.03.
The periods that matter
| Period | Where printed | What it is |
|---|---|---|
| 24 months | Policy 5.01(d) | Validity of the authorisation for import, from the date of issue; revalidation is not permitted |
| 6 years | Policy 5.01(b) | Time to fulfil the export obligation, from the date of issue |
| 3 years | Handbook 5.04(a) | Time from completion of import to produce the installation certificate; extension up to the valid EO period on a composition fee of Rs. 10,000 per year |
| 4 years | Handbook 5.13(a) | First block (1st to 4th year), in which at least 50% of the specific export obligation is to be fulfilled; the balance falls in the 5th and 6th year |
| 3 months | Handbook 5.13(b) | Intimation to the Regional Authority after completion of a block |
| 2 years | Handbook 5.22 | Retention of accounts from the date of redemption |
An import period of 24 months is printed in paragraph 5.01(d); Chapter 5 of the Policy prints no other import period.
Export obligation: paragraphs 5.04 to 5.08
The specific export obligation is 6 times the duties, taxes and cess saved (5.01(b)). It is calculated on actual duty saved for direct imports, and for domestic sourcing on notional customs duty, taxes and cess saved on the FOR value shown in the ARO or invalidation letter (5.08).
Paragraph 5.04 sets out how the obligation is met:
- through export of goods manufactured by the holder or the supporting manufacturer, or services rendered, directly or through third parties (5.04(a), (b));
- over and above the average level of exports in the preceding three licensing years for the same and similar products, the Average Export Obligation (AEO) being the arithmetic mean and fulfilled every financial year (5.04(c));
- exports under Advance Authorisation, DFIA, Duty Drawback, RoSCTL and RoDTEP also count (5.04(e)); both physical and deemed exports count (5.04(f)); exports made from DTA units only are counted for AEO and EO (5.04(g));
- supply of ITA-I items to the DTA counts where realisation is in convertible foreign exchange (5.04(h)); royalty and R&D service receipts count (5.04(i)); rupee receipts for services in Appendix 5D count (5.04(j)); rupee proceeds under paragraph 2.52(d)(ii) count (5.04(k)); and
- only one of the benefits in 5.04(d), 5.09, 5.10 and 5.11 is admissible (5.04(l)).
Paragraph 2.52(d)(ii) is cited as printed; paragraphs 2.52 and 2.53 were substituted on 20 August 2026, as our article on paragraphs 2.52 and 2.53 explains. The detailed rules are in our article on paragraphs 5.04 to 5.08. A plain-language walk through the arithmetic is in the guide on six times duty saved and the average export obligation.
Reduced obligations and relief: paragraphs 5.09 to 5.12
| Paragraph | Condition | Result |
|---|---|---|
| 5.04(d) | Indigenous sourcing of capital goods | Specific EO is 25% less than under 5.01; AEO unchanged |
| 5.09 | 75% or more of specific EO and the whole of AEO fulfilled in half or less than half of the original period | Remaining EO condoned and authorisation redeemed |
| 5.10 | Exporters of Green Technology Products (list in paragraph 5.26 of the Handbook) | Specific EO is 75% of the EO under 5.01(b) |
| 5.11 | Manufacturing units in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Jammu and Kashmir and Ladakh | Specific EO is 25% of the EO under 5.01(b) |
| 5.12 | Handicrafts, handlooms, KVIC industries, agriculture, aquaculture, animal husbandry, floriculture, poultry, viticulture, sericulture, carpets, coir and jute | No need to maintain AEO (not for fishing trawlers, boats, ships and similar items); goods not to be transferred for five years from import, other than tools |
Details are in our article on paragraphs 5.09 to 5.12.
Sourcing, insolvency, agro units and old authorisations: paragraphs 5.05 to 5.07 and 5.13
A holder may source capital goods from a domestic manufacturer through an invalidation letter or Advance Release Order, with the manufacturer eligible for deemed export benefits under paragraph 7.03 (5.07; our article on indigenous sourcing). A company admitted to insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 and with an approved resolution plan may be permitted relief in accordance with that plan (5.05). Units in Agri-Export Zones may furnish an LUT, a bond or a 15% bank-backed security (BG), as applicable (5.06). Authorisations issued in earlier policy periods listed in 5.13 stay under the provisions of those periods. Our article on paragraphs 5.05, 5.06 and 5.13 explains each.
Procedure under the Handbook
The Handbook is issued under section 6 of the Foreign Trade (Development and Regulation) Act, 1992, while the Policy rests on section 5. The main steps are:
- Application (5.02 of the Handbook): in ANF 5A to the Regional Authority, with the documents prescribed, by a registered office, head office, branch office or manufacturing unit.
- Nexus certificate (5.03): the authorisation is issued on a nexus certificate from an independent Chartered Engineer in Appendix 5A.
- Installation (5.04): a certificate within 3 years from completion of import.
- Block-wise fulfilment (5.13): at least 50% of the specific obligation in the first four years, the balance in years 5 and 6. A block extension request within 6 months of expiry carries a composition fee that depends on duty saved; if the first block is not fulfilled and not extended, duty with interest is payable proportionate to the unfulfilled obligation within 6 months from expiry of the block.
- Extension (5.16): beyond 6 years, two extensions of one year each or two years at once on a composition fee; extension beyond 8 years from issue is not allowed under that provision.
- Discharge (5.20): an online EODC application in ANF 5B; the Regional Authority ordinarily processes it within 30 days.
- Default (5.21, 5.24): duty and interest in proportion to the shortfall; action under the Act, the Policy, the Handbook and the Customs Act, 1962 for failure to fulfil the obligation. See section 11 of the Act on penalty.
The relaxations for authorisations whose block or original EO period expired between 01.03.2026 and 31.05.2026 (extended to 31.08.2026 by paragraphs 5.13(f) and 5.16(f) of the Handbook) are time-bound and have run their course; they are not the standing rule. Our articles on block-wise fulfilment, extension and discharge, default, re-export and clubbing carry the detail.
A practical example
Deccan Moulds, an invented manufacturer exporter, gets an EPCG authorisation to import a machine. It must complete its imports within 24 months of issue; if it misses that window, paragraph 5.01(d) says revalidation is not permitted. Its specific export obligation is 6 times the duty saved, to be met in 6 years from issue, and in the first four years it must fulfil at least 50% of it under paragraph 5.13(a) of the Handbook. It also keeps its Average Export Obligation each year. Had it sourced the machine from an Indian maker, the specific obligation would be 25% less under paragraph 5.04(d). It cannot claim that reduction and the green technology reduction together, because only one benefit is admissible under paragraph 5.04(l).
Need help with an EPCG authorisation?
Missed block dates, third-party exports and shortfalls are where authorisations get into trouble. Our legal consultation service can review the position before a deadline passes, and our dispute resolution team can assist with a show-cause or penalty proceeding. For the GST side, see our guide to GST refund under the EPCG scheme, which is a guide to GST law.
Key takeaways
- The authorisation is valid for import for 24 months; revalidation is not permitted (paragraph 5.01(d)).
- The export obligation is 6 times the duties, taxes and cess saved, to be fulfilled in 6 years (paragraph 5.01(b)).
- An Average Export Obligation applies on top, unless the exemption in paragraph 5.12 covers the sector.
- Only one reduced-obligation benefit can be used (paragraph 5.04(l)).
- At least 50% of the specific obligation falls due in the first four years (paragraph 5.13(a) of the Handbook).
Read next
- Paragraphs 5.00 and 5.01: the EPCG scheme
- Paragraphs 5.04 to 5.08: the EPCG export obligation
- Paragraphs 5.09 to 5.12: reduced EPCG export obligation
- Section 5 of the Foreign Trade (Development and Regulation) Act, 1992
Disclaimer: Based on the chapter-wise text of the Foreign Trade Policy, 2023 and the Handbook of Procedures, 2023 published on the DGFT website, and on the later Notifications named in this article, as consulted on 2 October 2026. The copies carry no "updated up to" date. Notifications, Public Notices, Trade Notices, the ITC(HS) schedules, Appendices and forms change often; the current text on the DGFT website should be checked before acting. This article is general information, not legal advice; check the official text before acting.