Export Promotion Capital Goods

Export Promotion Capital Goods (EPCG) Scheme: The 2026 Practitioner's Guide

The EPCG Scheme lets you import capital goods — machinery, equipment, tools, moulds — at zero Basic Customs Duty and zero IGST, in exchange for a binding commitment to export six times the duty saved over six years. Under FTP 2023, which governs the scheme through at least FY 2027-28, EPCG is available to manufacturer exporters, merchant exporters, and eligible service providers. If you plan your export pipeline conservatively and file annual returns on time, EPCG is the single most impactful cost-reduction lever in India's foreign trade toolkit. If you apply carelessly, it becomes a six-year liability.

What EPCG Actually Saves You

When you import a capital good without EPCG, you pay:

• Basic Customs Duty (BCD) — typically 7.5 % to 10 % on CIF value for most machinery
• Social Welfare Surcharge (SWS) — 10 % of BCD
• IGST — 18 % (or 5 %, 12 %, 28 % depending on goods) on the assessable value after BCD and SWS

Under a valid EPCG Authorisation, all three of these are exempted at the time of import. For most manufacturing machinery, this means you defer or eliminate 25–35 % of the landed cost of the machine.

One nuance matters for cash-flow planning: IGST paid on imports is ordinarily recoverable as Input Tax Credit (ITC) by a GST-registered exporter. So the "real" saving for a regular manufacturer-exporter is primarily the BCD and SWS, since they would recover the IGST anyway through ITC or IGST refund on exports. The IGST exemption under EPCG becomes genuinely valuable for service exporters, hospitals, and others who have restricted ITC entitlement.

The Export Obligation (EO) for determining how much you must export is calculated as 6 × Duty Saved Amount (DSA), where DSA = BCD + SWS actually exempted. IGST is not typically factored into the DSA for EO computation — confirm this on the face of your specific EPCG Authorisation, as the figure is printed there.

Who Qualifies: Eligibility Under FTP 2023

Para 5.01 of FTP 2023 extends EPCG eligibility to:

• Manufacturer exporters, with or without supporting manufacturers (i.e., you can procure from contract manufacturers and still export under your IEC)
• Merchant exporters tied to a named supporting manufacturer (the manufacturer's name and IEC must be endorsed on the authorisation)
• Service exporters — including hotels, hospitals, travel agents, engineering and technical consultancy firms, and institutions recognised as service exporters under the FTP
• Common Service Providers (CSP) — entities notified by DGFT, typically sector-specific Centres of Excellence

A note on deemed exporters: Supplies to EOU/SEZ/EHTP/STP units, and supplies against EPCG authorisations, are recognised as deemed exports. If you are a supplier to such units, check whether your supply qualifies as deemed export for EO fulfilment — it can dramatically shorten your EO timeline.

Capital Goods: What's In, What's Out

The positive list covers most productive assets used in manufacturing or service delivery:

• Plant and machinery, including CNC machines, injection moulding machines, textile looms, food processing lines
• Equipment, instruments, laboratory apparatus
• Jigs, fixtures, tools, dies and moulds
• Spares — up to 10 % of the CIF value of the capital goods in the same authorisation
• Packaging machinery where packaging is part of the export product preparation
• Refractories for initial lining (for furnace-based industries)
• Catalysts for an initial charge
• Computer systems and software embedded in or integral to the machinery (not standalone office computers)
• Second-hand capital goods subject to DGFT's age and condition norms

What is not eligible:

• Passenger cars, commercial vehicles (except for specific permitted users like car rental businesses exporting services)
• Office equipment such as air conditioners, furniture, photocopiers used in administration
• Standalone computers or peripherals not functionally integral to the imported plant
• Goods that are freely importable at zero BCD (no duty saving = no EPCG benefit)

If you are unsure whether a specific item qualifies, request an advance ruling from DGFT before filing. A Chartered Engineer certificate describing the functional nexus of the item to the manufacturing or export activity is essential and will be asked for during the application.

The Export Obligation Framework: Mechanics and Numbers

Calculating Your EO

The formula is straightforward:

> EO = 6 × DSA > > where DSA = BCD + SWS exempted at the time of import

This EO must be fulfilled over six years from the date of issue of the EPCG Authorisation (not from the date of import of the machinery — the date on the authorisation itself is the clock start).

Block-Wise EO and the Baseline Trap

The six-year EO period is split into two blocks:

If you miss the Block 1 target, DGFT may grant a composition extension on payment of a fee — but extensions are not automatic and require a formal application before the block deadline expires.

The baseline trap is the single most common planning error. Your EO under EPCG must be fulfilled over and above the average level of exports of the same or similar products in the three preceding licensing years. If your average exports of, say, engineering goods were Rs. 80,00,000 per year in FY 2022-23, 2023-24, and 2024-25, you must maintain that Rs. 80,00,000 per year baseline and achieve the additional incremental EO on top of it. Applicants who count their baseline exports toward EPCG EO fulfilment invite recovery notices.

What Counts as Fulfilment?

• Physical exports — direct exports under your IEC; most straightforward
• Third-party exports — exports made by another IEC holder on your behalf, with a proper legal declaration, CA certificate, and FIRC/BRC (Bank Realisation Certificate)
• Deemed exports — supplies to EOU/SEZ units, supplies against Advance Authorisation, and certain other categories listed in Para 7.02 of FTP 2023 (with the applicable disclaimer from the buyer)

Exports of certain restricted items, countertrade, barter, and re-exports do not qualify for EO fulfilment.

Worked Example: CNC Machine Import by a Ludhiana Engineering Exporter

Background: A Ludhiana-based manufacturer exports precision components (bicycle parts, auto components) and wants to import a CNC vertical machining centre from Taiwan.

Import financials:

EO Calculation:

• EO = 6 × Rs. 9,90,000 = Rs. 59,40,000 over 6 years

Block-wise targets:

• Block 1 (by the 4th anniversary of authorisation): Rs. 29,70,000 incremental exports
• Block 2 (by the 6th anniversary): Rs. 29,70,000 incremental exports

Baseline to maintain (average of preceding 3 years = Rs. 60,00,000/year): Rs. 60,00,000 per year in addition.

If EO goes unfulfilled — worst case, complete default after 6 years:

• Duty to recover: Rs. 9,90,000
• Interest at 15 % per annum for 6 years: Rs. 9,90,000 × 15 % × 6 = Rs. 8,91,000
• Total outgo: Rs. 18,81,000 — nearly double the original duty saving
• Plus penalty under the FTDR Act, 1992 (up to 5 times the duty saved)

This arithmetic alone explains why EPCG must be modelled conservatively before applying.

Applying on the DGFT Portal: Step-by-Step

All EPCG applications are filed online at dgft.gov.in (DGFT's portal, also referred to in practice as the DGFT V3 portal). Paper applications are not accepted.

Step 1: Ensure IEC-PAN linkage and GST integration Log into the DGFT portal. If your IEC is not yet linked to your PAN and GST registration, complete that integration first — EPCG authorisations cannot be issued otherwise under the current system.

Step 2: File ANF 5B — Application for EPCG Authorisation Navigate to Services → EPCG → Apply for Authorisation. Fill in:

• Applicant IEC, GSTIN, and premises address
• Details of capital goods to be imported (HS Code, description, CIF value, country of origin)
• Description of products to be exported (HS Code, export markets)
• Export Obligation statement (self-computed EO based on duty saved)
• Supporting manufacturer details, if applicable

Step 3: Upload documents (see checklist below)

Step 4: Pay application fee online through the DGFT payment gateway. The fee is as per Appendix 2K of the Handbook of Procedures (HBP) 2023 — verify the current slab before filing, as the base fee is approximately Rs. 10,000 for CIF value up to Rs. 5 crore with higher slabs for larger authorisations.

Step 5: Track and receive authorisation DGFT is required to issue the authorisation within the prescribed timeline (typically 3 working days for online applications with complete documentation). The authorisation is valid for 24 months from the date of issue for the purpose of import.

Step 6: Register with Customs before clearance Before the first import consignment is cleared, register the EPCG Authorisation with the customs port of import through the ICEGATE system. Execute the required Bond and Bank Guarantee (BG) at Customs.

Step 7: File installation certificate Within 6 months of import of the capital goods, file a Chartered Engineer certificate confirming that the goods have been installed at the registered premises.

Documents You Will Need

• Valid IEC (auto-fetched from DGFT database)
• GST registration certificate
• RCMC (Registration cum Membership Certificate) from the relevant Export Promotion Council — e.g., EEPC India (engineering), TEXPROCIL (cotton textiles), PHARMEXCIL (pharmaceuticals), FIEO (general)
• Chartered Engineer certificate describing the capital goods and their functional nexus to the export product
• Proforma invoice / purchase order for the capital goods
• Self-certified copy of audited financial statements for preceding 3 years (for baseline calculation)
• Factory registration / industrial licence, if applicable

Managing Your EO Calendar After Authorisation

Receiving the authorisation is not the end of the compliance journey — it is the beginning of a six-year obligation calendar.

Annual EO Fulfilment Reporting: Submit export evidence (shipping bills, e-BRCs, invoices) annually on the DGFT portal. Although there is no strict annual penalty for under-achievement within the block period, regular filing ensures you and DGFT both have a running record. Defaults discovered at block-end are harder and costlier to remediate than those caught annually.

Block 1 deadline: If you will not meet 50 % of EO by the fourth anniversary, file for a composition extension before the deadline expires. Post-deadline applications are rejected and full duty recovery with interest follows.

EODC Application (ANF 5C): Once the full EO is discharged — or at the end of the 6-year period — file ANF 5C on the DGFT portal. Attach: shipping bills, e-BRCs, CA certificate certifying EO fulfilment, and evidence that the capital goods are in productive use. DGFT will issue the Export Obligation Discharge Certificate (EODC), which you then submit to Customs to close the Bond and release the Bank Guarantee.

BG release: The Bank Guarantee lodged with Customs is released only after receipt of the EODC. Until then, it blocks working capital — typically 15–25 % of the duty saved — so timely EODC closure is a cash-flow priority, not just a compliance checkbox.

FTP 2023 Refinements That Change the Calculus in 2026

FTP 2023 (effective April 1, 2023 and operational through FY 2027-28) retained the EPCG core structure but introduced several refinements that a practitioner should apply:

1. Reduced EO for Green Technology Capital goods for manufacture of specified green technology products — including solar cells and modules, wind turbines, EVs and hybrid vehicles, fuel cells, and LED lighting equipment — attract an EO of only 75 % of the standard 6x, i.e., effectively 4.5 times the duty saved. If your business is in any of these sectors, this is a material benefit and must be claimed explicitly in the application.

2. Faster EODC Closure Online The single-window online EODC process on the DGFT portal has shortened the discharge cycle. Well-prepared applications with complete shipping bill and e-BRC linkage are cleared in weeks, not months. Connect your IEC to the ICEGATE-DGFT data-sharing bridge to allow automatic import of shipping bills into your EO statement.

3. Self-Certification by CA For certain categories of deemed exports and third-party exports, a CA certificate is accepted in lieu of additional DGFT scrutiny. Maintain a meticulous EO register — classified by authorisation number, date of import, DSA, export evidence, and balance EO — in a format your CA can certify readily.

4. EO Clubbing for Same IEC, Multiple Units FTP 2023 permits EO fulfilment from any manufacturing unit registered under the same IEC. If you operate multiple factories, exports from all units aggregate toward a single authorisation's EO — useful for large conglomerates managing capacity across locations.

Common Mistakes That Lead to Interest and Penalty Demands

Mistake 1: Counting baseline exports toward EPCG EO Exporters who export Rs. 1 crore per year before EPCG and take an EO of Rs. 60 lakh often assume their existing exports will discharge the EO. They will not. The Rs. 60 lakh EO must come from incremental exports above the Rs. 1 crore annual baseline. Clarify this before modelling your EPCG benefit.

Mistake 2: Importing goods before authorisation is issued The EPCG duty exemption applies only to goods imported after the authorisation is issued and before its 24-month validity expires. Goods imported before the authorisation is in hand attract full duty with no retrospective relief.

Mistake 3: Failing to register the authorisation at Customs before clearance Even if the EPCG Authorisation is in hand, importing without registering it on ICEGATE means the port will assess full duties. Restoration is possible but is a lengthy adjudication process. Always register before the goods arrive.

Mistake 4: Missing the installation certificate deadline The 6-month installation certificate deadline is strict. If the machine is installed but the Chartered Engineer certificate is delayed, DGFT can treat the obligation as unmet for that consignment. Calendar this deadline the day you import.

Mistake 5: Not securing RCMC before applying DGFT will not issue an EPCG Authorisation without a valid RCMC from a recognised Export Promotion Council. RCMC renewal cycles (annual or biennial depending on the EPC) often slip. Check validity before initiating the EPCG application.

Mistake 6: Taking EPCG for capital goods with zero or near-zero BCD Some machinery categories (particularly those under the ITA-1 agreement) attract 0 % BCD already. Applying for EPCG on such goods yields zero DSA, creates a nominal EO, and generates compliance burden for no practical benefit. Always compute DSA before filing.

Key Takeaways

• EPCG exempts BCD, SWS, and IGST on capital goods; the net cash saving is primarily BCD + SWS for GST-registered exporters who can recover IGST through ITC.
• EO = 6 × DSA (BCD + SWS saved), to be fulfilled over 6 years in two blocks (50 % in 4 years, 50 % in 2 years) — and it must be incremental to your 3-year average baseline exports.
• Failure to fulfil EO triggers recovery of the full duty saved plus 15 % per annum interest from the date of import — meaning a 6-year default can cost nearly double the original duty saved, before penalties.
• Apply on ANF 5B at dgft.gov.in; register the authorisation with Customs on ICEGATE before the first import; file installation certificate within 6 months; apply for EODC on ANF 5C at the end of EO period.
• Green technology products qualify for a reduced EO of 75 % of normal (effectively 4.5× DSA) — apply this reduction explicitly in your ANF 5B.
• Bank Guarantee lodged with Customs is released only after EODC — factor this working capital lock-in into your EPCG cost-benefit model.
• Model your EO against 70–80 % of your realistic export forecast, not your optimistic one; the downside of shortfall is asymmetric and unforgiving.