To remain competitive in overseas markets, Indian exporters need the best technology, efficient machinery, and optimum cost of production. But the expensive nature of importing capital goods usually becomes an obstacle for most businesses. This is where the Export Promotion Capital Goods (EPCG) Scheme is helpful.
Initiated by the Government of India in terms of the Foreign Trade Policy (FTP), the EPCG scheme gives exporters a chance to import capital goods at zero or concessional customs duty. Reducing the initial investment for technology and machinery, it makes industries become competitive in a global setting.
In this blog, we will discuss EPCG scheme benefits, eligibility, conditions, and challenges, as well as actionable tips on how exporters can best use this potent scheme.
What is the EPCG Scheme?
The EPCG scheme, which is controlled by the Directorate General of Foreign Trade (DGFT), enables Indian exporters to bring in capital goods for pre-production, production, and post-production at zero or concessional customs duty. The major aim is to promote technology upgradation, enhance production quality, and increase global competitiveness.
For a detailed overview of the EPCG scheme and its features, check our complete EPCG Scheme Guide
Eligibility for EPCG Scheme:
- Manufacturer exporters (direct exporters).
- Merchant exporters tied to supporting manufacturers
- Service providers involved in export-related services (e.g., hotels, hospitals, logistics).
By utilizing this scheme, the cost of acquiring machinery for the exporters can be drastically lowered while meeting export requirements as stipulated by DGFT.
Important EPCG Scheme Advantages for Exporters
Capital Goods Duty Savings
One of the largest advantages of the EPCG scheme is that customs duty on imports of capital goods is reduced or exempted completely. For the exporter, this means enormous savings in terms of investments at the outset. Rather than investing excessively on import duty, companies can utilize funds towards operations, marketing, and expansion.
Enhances Export Competitiveness
Reduced costs of production allow Indian products to be sold at competitive prices in the international market. Exporters with advanced machines and modern technology can supply superior quality at reduced prices, establishing themselves strongly in the international market.
Improved Cash Flow Management
As the EPCG scheme removes the drudgery of high advance payment of duties, exporters find themselves in a better liquidity position. Such cash flow flexibility enables companies to handle working capital more efficiently, maintaining day-to-day smooth operations without financial pressure.
Modernization & Technology Upgradation
The scheme simplifies the process of acquiring world-class machines from any place in the globe. Facilitating updation of production machinery enhances efficiency, curtails wastage, and makes Indian exporters quality-conscious as per global standards.
Encourages MSMEs and Startups
For startups and MSMEs, the EPCG scheme is particularly useful. They do not have the means to invest in costly machinery. Small players can easily scale up operations, innovate, and increase exports with lower or no import duties.
EPCG Scheme Benefits vs Other Export Incentives
India has a wide range of schemes for export incentives like Drawback, Advance Authorization, RoDTEP (Remission of Duties and Taxes on Export Products), RoSCTL (Rebate of State and Central Taxes and Levies),
Whereas these schemes offer tax rebate or post-export incentives, EPCG aims to cut initial costs by allowing duty-free imports of capital goods. This differs from the other schemes in that it strengthens the exporter prior to production as compared to after production.
Conditions to Enjoy EPCG Scheme Benefits
Though the EPCG scheme is very rewarding, the exporter needs to satisfy certain conditions:
- Export Obligation: Exporters are required to realize an export obligation of 6 times the duty saved within 6 years from the license issuance date.
- Sectors Covered: Available for manufacturers, merchant exporters, and service providers from various sectors.
- Capital Goods Permitted: Plant, machinery, equipment, and spares utilized in manufacturing and export.
Learn more about the Export Obligation under EPCG Scheme and how to stay compliant.
Failure to satisfy these requirements can result in penalties, and thus exporters need to plan their obligations carefully.
Documents required for EPCG license
You will need these documents to obtain the EPCG license including:
- Import Export Code (IEC)
- Pan Card
- Proforma Invoice
- Digital signature
- GST Registration Certificate
- MSME/Industrial Registration Certificate
- Brochure
- Registration cum Membership Certificate (RCMC)
- Self-Certified Original Copy of Certificate of Chartered Accountant
- Self-Certified Original Copy of Certificate of Chartered Engineer
Common Issues in Obtaining EPCG Benefits
In spite of its benefits, businesses frequently encounter challenges:
- Compliance Problems: Failure to report or neglect to monitor export commitments can result in penalties.
- Documentation & Procedures: The process requires excessive documentation and DGFT procedures, which prove difficult for new applicants. Inaccurate or incomplete records for import and export transactions, or missing export information on shipping bills
- Penalties for Non-Compliance: In case the export obligation is not fulfilled, exporters can be asked to refund the saved duty along with penalties and interest.
- Non-Submission of Installation Certificate:Submission of Installation certificate of imported machinery to the Regional Authority (RA) within the required timeframe.
- EO Extension Issue: Delays in reporting to the DGFT and in applying for Export Obligation Period (EOP) extensions.
For hassle-free compliance and to avoid penalties, explore our guide on EPCG Scheme Compliances
How to Maximize EPCG Scheme Benefits for Your Business
To derive the maximum benefit from EPCG, exporters need to pursue a structured approach:
- Understand Eligibility Clearly – Validate your business’s eligibility before making an application.
- Accurate Documentation – Keep proper records of capital goods imports as well as export obligations.
- Timely Application – Submit applications with DGFT at the appropriate phase of your business planning.
- Regular Compliance Tracking – Track export performance to ensure compliance is achieved.
- Professional Assistance – Collaborating with professionals such as Afleo Group ensures hassle-free EPCG license application, compliance maintenance, and compliance with export obligations.