EPCG Scheme: Six Times Duty Saved, and the Average Export Obligation

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 headline obligation is easy to state — export six times the duty saved within six years. What catches holders out is the second obligation sitting underneath it: an annual average based on past performance that must be met every year, and which does not count towards the first.

EPCG allows duty-free import of capital goods for pre-production, production and post-production. The specific export obligation (EO) is six times the duties, taxes and cess saved, to be fulfilled in six years from the date of authorisation. Separately, an Average Export Obligation (AEO) — "the arithmetic mean of export performance in the preceding three licensing years for the same and similar products" — "must be fulfilled every financial year until the export obligation is completed", and only "Exports/supplies made over and above the AEO are considered for fulfillment of the EO." Authorisation is valid 24 months for import; revalidation is not permitted.

The two obligations, and why they stack

Specific EO. Six times the duty saved, over six years.

Average EO. The mean of the last three licensing years' exports of the same and similar products, every year, until the specific EO is done.

The design is anti-substitution. Without an AEO, an exporter could import machinery duty-free and simply re-badge existing exports as EPCG fulfilment, adding nothing. The AEO ring-fences the historic baseline; only exports above it count.

A new exporter has no baseline — "in such case, there will be no average export obligation."

And the AEO ends when the specific EO does — it runs "until the export obligation is completed."

Calculating the EO

On direct import: "the Export Obligation shall be calculated based on the actual amount of duty, taxes, or cess that is saved."

On domestic sourcing: "the EO shall be determined with reference to the notional Customs duty, taxes, or cess that would have been paid on the FOR value, as indicated in the ARO or Invalidation letter."

And domestic sourcing carries a 25% discount. "Domestic manufacturers will be eligible for deemed export benefits. Specific EO shall be 25% less than the stipulated EO. Domestic sourcing of capital goods will neutralize GST by refund route to the supplier or recipient till the date notified."

That is a substantial incentive. Sourcing a machine domestically both reduces the EO by a quarter and gives the domestic supplier deemed export benefits. Deemed exports →

What counts towards the EO

• Physical exports and deemed exports both qualify — "Deemed export supplies are eligible for other benefits available."
• Exports under Advance Authorization, DFIA, Duty Drawback, RoSCTL, and RoDTEP are "also eligible for fulfillment of the EO under the EPCG Scheme."
• Third-party exports count "where the names of both authorization holder and supporting manufacturer are indicated in the export documents like shipping bill/bill of exports etc. along with EPCG authorization number."

The overlap point is important and often doubted. An exporter can claim RoDTEP on a shipment and count it towards an EPCG obligation. The Handbook confirms it from the other side too: "The restriction under the Scheme does not cover the capital goods imported under EPCG Scheme. Thus, exporter may continue to claim the benefit of EPCG and RODTEP simultaneously." RoDTEP →

Early fulfilment: the condonation

"With a view to accelerating exports, in cases where Authorisation holder has fulfilled 75% or more of specific export obligation and 100% of Average Export Obligation till date, if any, in half or less than half the original export obligation period specified, remaining export obligation shall be condoned and the Authorisation redeemed by RA concerned."

Both conditions must hold, and within three years for a six-year obligation. An exporter at 74% at the three-year mark, or at 80% but behind on AEO, gets nothing.

Extension: two years, two prices

"Two extensions of one year each in export obligation period may be considered by RA concerned", at the exporter's choice:

The choice is a cash-against-obligation trade. A holder confident of catching up takes the enhanced EO; one who is not takes the fee.

Exemption from the average EO: thirteen sectors

The AEO need not be maintained for exports of:

(i) Handicrafts, (ii) Handlooms, (iii) Industries covered under the Khadi and Village Industries Commission, (iv) Agriculture, (v) Aquaculture (including Fisheries) and Pisciculture, (vi) Animal husbandry and Dairying, (vii) Floriculture & Horticulture, (viii) Poultry, (ix) Viticulture, (x) Sericulture, (xi) Carpets, (xii) Coir, and (xiii) Jute.

Two limits on that relief.

"this exemption from maintenance of average export obligation shall not be allowed for import of fishing trawlers, boats, ships and other similar items."

And "Goods, except for tools, imported under EPCG scheme by sectors… shall not be allowed to be transferred for a period of five years from date of imports even in cases where export obligation has been fulfilled."

So the relief is paid for with a five-year transfer lock — longer than the ordinary Actual User restriction, which ends at EODC.

The conditions that apply throughout

Validity. "Authorization is valid for import for 24 months from its issuance date. Revalidation is not permitted."

Bank guarantee. "A bank guarantee of 15% of the duty saved amount should be submitted at customs which is subject to some exemptions, for example if the Licence holder is a Status Holder." Status holder privileges →

Restricted export goods. Where the goods proposed for export are restricted, "the authorization must be issued after approval from the Exim Facilitation Committee (EFC) at DGFT Headquarters."

Installation certificate. Within six months from the date of completion of import, a certificate from "the jurisdictional Customs authority or an independent Chartered Engineer, at the option of the authorization holder", confirming installation at the holder's or supporting manufacturer's premises. "The failure of the same leads to a penalty of ₹5,000."

Actual user. "capital goods cannot be transferred or sold till export obligation is completed and EODC is granted."

Inter-unit transfer. Allowed "by EPCG Committee in DGFT" provided "both the addresses are mentioned in IEC and RCMC" and "submission of fresh installation certificate is done within 6 months of such transfer."

What can and cannot be imported

Not permitted — "construction material like cement, steel & computer and printers… as these items are prohibited under Appendix-5F."

Permitted for service providers. "EPCG scheme is available for manufacturer as well as for service providers like hotel, hospital etc. Further, furniture and carpets are allowed to be imported duty free under EPCG scheme by hotel industry only, not for the manufacturing company."

Project imports run in parallel. "concessional benefits under project import regulations and exemption under EPCG can be availed simultaneously, and export obligation will be calculated with respect to the concessional tax saving as prescribed under project import regulation."

Clubbing, redemption and post-export EPCG

Clubbing (Form ANF-5C) requires: same authorisation holder; same or similar export products; total EO re-fixed on the total duty saved; the clubbed set treated as a single authorisation; EO period reckoned from the first authorisation's issue date; average obligation the highest among those clubbed; and clubbing only during a valid EOP including extension.

Redemption is applied for in ANF-5C with specified documents. (Applications for issue use ANF-5A; redemption of the authorisation or issuance of a post-export duty credit scrip uses ANF-5B.)

Post-export EPCG. "available to exporters who intend to import capital goods on full payment of applicable duties, taxes and cess in cash and choose to opt for this scheme. Basic customs duty paid on capital goods shall be remitted in the form of freely transferable duty credit scrip(s)."

GST is not upfront-exempt on domestic EPCG supply. "Supply of goods against EPCG authorization is deemed export but not exempted upfront and hence supply against EPCG is liable to GST; however, the recipient or supplier have option either to avail input tax credit or refund of GST paid."

The enabling notification is Customs Notification No. 26/2023-Customs dated 1 April 2023, exempting the whole of the First Schedule duty, the whole of the additional duty under sections 3(1), 3(3) and 3(5) when specifically claimed, and the whole of integrated tax and compensation cess under sections 3(7) and 3(9).

Key takeaways

• Specific EO = six times duty saved, in six years; AEO = mean of the last three years, every year, and only exports above the AEO count.
• A new exporter has no AEO.
• Domestic sourcing cuts the specific EO by 25% and gives the supplier deemed export benefits.
• AA, DFIA, drawback, RoSCTL and RoDTEP exports all count towards the EPCG EO; EPCG and RoDTEP can be claimed simultaneously.
• Early fulfilment: 75% specific EO and 100% AEO in half the period condones the remainder.
• Two one-year extensions, at 5% / 10% composition fee or +10% / +20% EO.
• Thirteen sectors are exempt from the AEO, but not for fishing trawlers, boats and ships, and their goods cannot be transferred for five years even after EO completion.
• 24 months import validity, no revalidation; 15% bank guarantee, waived for status holders; installation certificate in six months, else ₹5,000.
• Appendix 5F prohibits cement, steel, computers and printers; hotels may import furniture and carpets.
• Notification No. 26/2023-Customs is the enabling exemption.

Read next

• Deemed Exports: FTP Para 7.02 Against Notification No. 48/2017
• RoDTEP: E-Scrips and the Annual RoDTEP Return
• MOOWR: Duty Deferment Without an Export Obligation

Disclaimer: Positions stated as on 5 September 2026, based on Chapter 5 of the Foreign Trade Policy 2023 and the corresponding Handbook of Procedures, Appendices 5A to 5F and Forms ANF-5A to 5C, and Customs Notification No. 26/2023-Customs dated 1 April 2023, as reproduced in the ICAI Handbook on Foreign Trade Policy – Incentives, Schemes & Related FAQs (November 2025, 2nd Edition).