The EPCG scheme saves 7.5-10% of CIF value in Basic Customs Duty by allowing zero-duty import of capital goods. For a Rs 1 crore machinery import, EPCG saves Rs 7.5 lakh upfront — in exchange for exporting Rs 45 lakh in goods over 6 years.
EPCG allows Indian manufacturers and service providers to import capital goods at zero Basic Customs Duty by committing to an export obligation equal to six times the duty saved, spread over six years. For most capital goods attracting 7.5% BCD, the savings equal 7.5% of the CIF value plus surcharge. You must export at least the duty saved amount every year to remain compliant.
EPCG saves 7.5–10% of CIF value in Basic Customs Duty (BCD) plus 10% Social Welfare Surcharge (SWS), in exchange for an export obligation of six times the duty saved over six years. The DGFT licence fee is Rs 200 per lakh of duty saved with a minimum of Rs 1,000, and new applicants must submit a bank guarantee (BG) equal to 15% of the duty saved, which is discharged incrementally as the export obligation (EO) is fulfilled.
For example, importing machinery worth Rs 1 crore at 7.5% BCD saves Rs 7.5 lakh in duty. Adding the SWS exemption of Rs 75,000 and subtracting the DGFT licence fee of Rs 1,500, total upfront cash relief is Rs 8.23 lakh. The export obligation becomes Rs 45 lakh over six years, or Rs 7.5 lakh annually. If your current exports already exceed this figure, EPCG delivers immediate cash flow relief at import without any capital outlay for the duty component. Before proceeding, confirm three things: your business already exports enough to cover the annual obligation; you have a credible pipeline for the next six years; and the machinery will directly generate foreign exchange.
One detail often overlooked is the bank guarantee requirement. New EPCG applicants must furnish a BG of 15% of the duty saved — Rs 1.12 lakh in the Rs 1 crore example — which customs holds until the EO is redeemed. The BG is released proportionally as export documents are submitted to DGFT. Always calculate savings net of the DGFT fee and BG lock-up when presenting the case to your board or lender.
A Bengaluru precision engineering unit importing a Rs 50 lakh CNC machine from Germany saves Rs 4.125 lakh upfront under EPCG, with an annual export obligation of only Rs 3.75 lakh — less than 7% of its current Rs 60 lakh annual exports. The unit must also pay a DGFT licence fee of Rs 1,000 (minimum) and submit a bank guarantee of Rs 56,250 (15% of duty saved) until the export obligation is fulfilled.
Applying the EPCG formula, the duty saved equals Rs 50 lakh multiplied by 7.5%, which comes to Rs 3.75 lakh. Adding the Social Welfare Surcharge at 10% of the duty, the total savings at import amount to roughly Rs 4.125 lakh. The export obligation is six times the duty saved, totalling Rs 22.5 lakh over six years. Breaking this into annual targets gives Rs 3.75 lakh per year.
For a business already exporting Rs 60 lakh annually, committing to an additional Rs 3.75 lakh of exports each year is highly manageable. In fact, the owner may only need to redirect a fraction of existing domestic orders to export channels or slightly expand the European client base. The CNC machine itself enhances product quality, which supports the argument that the imported capital goods will facilitate higher export revenue. In this scenario, EPCG delivers immediate liquidity relief of over Rs 4 lakh while the obligation represents less than 7% of current annual exports.
The key takeaway for small manufacturers is scale proportionality. When the duty saved falls below Rs 5 lakh, the administrative effort of maintaining EPCG records and submitting half-yearly reports to the DGFT involves approximately 4–6 hours per year. The risk profile is low because the annual obligation is a small fraction of existing export capacity. Small manufacturers should still ensure they obtain a valid EPCG authorisation before the goods arrive at the port, because retrospective claims are not permitted under the Foreign Trade Policy.
A Mumbai food processing company exporting Rs 1.2 crore annually saves Rs 16.5 lakh upfront on a Rs 2 crore automated packaging line from Italy, with a 12.5% annual export growth target of Rs 15 lakh over six years. The company must pay a DGFT licence fee of Rs 3,000 (Rs 200 per lakh of duty saved) and submit a bank guarantee of Rs 2.25 lakh (15% of Rs 15 lakh duty saved) until the export obligation is redeemed.
For a company already exporting Rs 1.2 crore, adding Rs 15 lakh annually is a 12.5% growth target. This is realistic if the packaging line opens access to premium retail chains in Europe or Japan. The machinery directly enables higher-margin exports, so the obligation and growth plan align. The Rs 16.5 lakh saved can be redeployed to marketing or working capital. Mid-size exporters should validate HS code (Harmonized System classification) carefully, because components with varying BCD rates must be calculated line by line to avoid redemption disputes.
A new Hyderabad diagnostic centre importing Rs 5 crore of MRI and CT scanners from Germany saves Rs 41.25 lakh upfront under EPCG's relaxed service-exporter norms, with a reduced export obligation of Rs 1.6875 crore over six years instead of the standard Rs 2.25 crore. The centre must pay a DGFT licence fee of Rs 7,500 and submit a bank guarantee of Rs 5.625 lakh (15% of Rs 37.5 lakh duty saved), which DGFT releases incrementally as foreign exchange remittances are documented.
At 7.5% BCD, duty saved on Rs 5 crore equals Rs 37.5 lakh. The Social Welfare Surcharge adds Rs 3.75 lakh, bringing total savings to Rs 41.25 lakh. The standard export obligation would be Rs 2.25 crore, but the 75% relaxation reduces it to Rs 1.6875 crore over six years, or roughly Rs 28.13 lakh annually.
As a new venture, the centre must submit a projected business plan to the DGFT and provide the bank guarantee of Rs 5.625 lakh. The guarantee is released incrementally as foreign exchange remittances are documented. This allows new entrants to import equipment without the immediate Rs 41.25 lakh duty outlay. Attracting just a few international patients per month could satisfy the annual obligation, making EPCG a powerful launchpad for service startups.
EPCG is not advisable when duty saved falls below Rs 2 lakh, when export order books are uncertain, for domestic-only businesses, or for capital goods on the DGFT restricted list. For a Rs 15 lakh machine, savings of roughly Rs 1.24 lakh may not justify six years of compliance paperwork, half-yearly reporting, and the 15% bank guarantee lock-up.
Second, exporters with uncertain order books face legal and financial risk by locking into a six-year obligation. A market downturn or currency fluctuation could trigger penalty provisions, so paying duty upfront preserves flexibility. Third, domestic-only service providers cannot satisfy the obligation because EPCG requires documented foreign exchange remittances. Hospitals or IT firms with no international clients should avoid EPCG entirely.
Fourth, capital goods on the DGFT negative or restricted list are ineligible regardless of HS code (Harmonized System classification). Certain defence-related and environmentally sensitive equipment cannot claim EPCG. Always cross-check the Foreign Trade Policy appendices before importing, because claiming EPCG on a restricted item can lead to confiscation and prosecution under the Customs Act, 1962.
Choosing between EPCG, Advance Authorisation, and standard import without incentive depends on your business model. The comparison table below highlights the key differences.
| Parameter | EPCG Scheme | Advance Authorisation (AAS) | No Incentive |
|---|---|---|---|
| What is imported duty-free | Capital goods (machinery, equipment) | Raw materials, components, inputs | Not applicable |
| Export obligation basis | 6 times duty saved over 6 years | Export finished products made from inputs | None |
| Typical savings | 7.5% to 10% of CIF value plus surcharge | Duty on inputs (varies by product) | Zero |
| Timeframe | 6 years (8 years for agro units) | 12 to 36 months depending on product | Immediate |
| Best for | Manufacturers scaling capacity | Exporters with high input import bills | Domestic-only businesses |
| Bank guarantee | Required for new applicants and services | Required in most cases | Not required |
| Penalty for non-compliance | Duty saved plus 15% p.a. interest | Duty on inputs plus 15% p.a. interest | Not applicable |
Choose EPCG for expensive machinery that stays on your balance sheet. Choose Advance Authorisation (AAS) for raw materials consumed in export production. Choose no incentive only if you have no export revenue and no plans to develop any. Some large exporters combine both schemes, but this demands rigorous record-keeping to avoid cross-contamination of obligations.
EPCG is a conditional deferment, not a subsidy. The duty waiver becomes permanent only after fulfilling the export obligation. Default triggers repayment of the entire duty saved plus 15% interest per annum calculated from the date of import — not from the export obligation deadline — a common surprise for importers. For a Rs 10 lakh saving imported in Year 1, interest accrues from Day 1 at Rs 1.5 lakh yearly; by the six-year deadline, total liability can exceed Rs 20 lakh even if the shortfall is discovered only at year-end.
The DGFT also maintains a compliance database. Defaulters are typically debarred from export incentives for two to three years, damaging credibility with banks and customs. Fraudulent claims can lead to prosecution under Section 135 of the Customs Act, 1962. The only relief is a DGFT extension for force majeure events such as war or natural disaster. Routine business problems do not qualify. Treat the obligation as binding, build export buffers, and submit your EODC (Export Obligation Discharge Certificate) promptly after fulfilment.
EPCG saves the Basic Customs Duty (BCD) component on capital goods imports, typically 7.5% to 10% of the CIF value. For example, importing machinery worth Rs 1 crore can save Rs 7.5 to 10 lakh in duty upfront, plus the 10% Social Welfare Surcharge of Rs 75,000–1,00,000. The DGFT charges a licence fee of Rs 200 per lakh of duty saved (minimum Rs 1,000), and new applicants must submit a bank guarantee equal to 15% of the duty saved. Net cash relief after these costs still ranges from Rs 7.3 to 9.7 lakh for a Rs 1 crore import.
Any Indian manufacturer or service provider with a valid IEC (Import Export Code) from DGFT can apply for EPCG. The applicant must demonstrate the ability to fulfil the export obligation, which is six times the duty saved, over six years. Both existing exporters and new businesses with a viable export business plan are eligible under the Foreign Trade Policy. New applicants must submit a bank guarantee equal to 15% of the duty saved, which is discharged incrementally as export documents are filed. Service exporters benefit from a reduced obligation of 75% of the standard norm.
If you fail to fulfil the EPCG export obligation, you must pay back the entire duty saved along with 15% interest per annum calculated from the date of import — not from the export obligation deadline. This means interest starts accruing from Day 1 of import, not from the year you fall short. Additionally, DGFT will encash your bank guarantee or bond and may debar you from future export incentives for two to three years. For a Rs 10 lakh duty saving, six years of accrued interest at 15% p.a. can push total liability above Rs 20 lakh.
Yes, new companies can apply for EPCG. While established exporters find it easier to demonstrate export capability, startups and new manufacturing units can also avail the benefit by submitting a projected export business plan to DGFT. However, they must provide a bank guarantee equal to 15% of the duty saved until the export obligation is fulfilled. The guarantee is released incrementally as foreign exchange remittances are documented. Service exporters such as diagnostic centres or IT firms benefit from relaxed norms with a reduced export obligation of 75% of the standard six-times multiplier.
Yes, service exporters are eligible for EPCG under relaxed norms. Service companies can import capital goods at zero duty with a reduced export obligation of 75% of the standard norm — meaning 4.5 times the duty saved over six years instead of six times. The exported services must generate foreign exchange earnings, and the company must maintain proper documentation of inward remittances. A new diagnostic centre importing Rs 5 crore of equipment saves Rs 41.25 lakh upfront but must earn Rs 1.6875 crore in foreign exchange over six years, or roughly Rs 28.13 lakh annually.
EPCG allows duty-free import of capital goods used for manufacturing or providing services, with an export obligation of six times the duty saved over six years. Advance Authorisation (AAS) allows duty-free import of raw materials, components, and inputs used to manufacture export products, with the obligation to export the finished goods within 12–36 months. EPCG is for machinery and equipment; AAS is for consumable inputs. You cannot use EPCG for raw materials or AAS for capital goods — the schemes are mutually exclusive by product category.
Speak with our customs experts to see whether EPCG, Advance Authorisation, or standard import works best for your next capital goods shipment.