If you're an Indian manufacturer or exporter planning to import machinery, the Export Promotion Capital Goods (EPCG) scheme is arguably the most powerful duty-saving tool available under India's Foreign Trade Policy. It allows you to import capital goods at 0% customs duty — provided you commit to fulfilling an export obligation over a defined period.
For food processing units, textile manufacturers, pharmaceutical companies, and virtually any export-oriented business, this scheme can slash project costs by 20–40% compared to importing on full duty. But the compliance requirements are serious, and a misstep can trigger duty recovery with 15% interest, penalties, and even blacklisting by DGFT.
This guide covers everything you need to know about the EPCG scheme in 2026 — from eligibility and application to export obligation fulfillment, recent policy changes, and the common mistakes that trip up even experienced importers.
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The EPCG scheme is governed by Chapter 5 of the Foreign Trade Policy (FTP) 2023 and the corresponding Handbook of Procedures (HBP) — Para 5.01 to 5.19. First introduced in 1990 and periodically updated, the current version under FTP 2023 (effective April 1, 2023, and continuing into 2025–26) permits:
The catch: You must fulfill an Export Obligation (EO) equal to 6 times the duty saved, within a period of 6 years from the date of authorization.
| Reference | Description |
|---|---|
| FTP 2023, Chapter 5 | Policy provisions for EPCG |
| HBP 2023, Para 5.01–5.19 | Procedural guidelines |
| Customs Notification No. 16/2023-Cus dated 01.04.2023 | Exemption notification for EPCG imports |
| DGFT Policy Circular No. 04/2023 | Clarifications on EO computation |
| Section 14 of the Customs Act, 1962 | Valuation of imported goods |
| Section 111(o) of the Customs Act, 1962 | Confiscation for non-fulfillment of conditions |
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Eligibility is broader than most importers realize. Under Para 5.01 of FTP 2023, the following entities can apply:
Food processing companies are among the largest beneficiaries of EPCG. If you're importing:
...you can bring all of these in at zero duty under EPCG, provided you can commit to the export obligation.
Example: A mango pulp exporter in Ratnagiri imports an aseptic processing and packaging line from Tetra Pak (Sweden) valued at ₹8 crore. Normal duty (BCD + SWS + IGST) would be approximately ₹2.4 crore. Under EPCG, duty paid = ₹0. The export obligation = 6 × ₹2.4 crore = ₹14.4 crore in exports over 6 years — roughly ₹2.4 crore per year, which is achievable for a mid-size exporter.
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You need a valid Importer Exporter Code (IEC) from DGFT and a Registration Cum Membership Certificate (RCMC) from the relevant Export Promotion Council (e.g., APEDA for agricultural products, CAPEXIL for chemicals, EEPC for engineering goods).
Applications are filed through the DGFT online module at dgft.gov.in. The application form is ANF 5A.
Key documents required:
> Pro tip: Getting the HSN classification right at the application stage is critical. An incorrect HSN code can lead to rejection by DGFT or, worse, a discrepancy at the time of customs clearance that triggers a show cause notice. Tools like CustomsAI can help you verify the correct 8-digit HSN classification using AI-driven search — particularly useful when dealing with complex machinery that could fall under multiple headings (e.g., Chapter 84 vs. Chapter 85).
DGFT issues the EPCG authorization electronically. The authorization specifies:
Present the EPCG authorization at the time of filing the Bill of Entry (BoE). Customs clearance happens under Notification No. 16/2023-Cus, which provides the 0% duty exemption.
You'll need to execute a Bond (B-17) with the customs authority and furnish a Bank Guarantee (BG) — typically 15% of the duty saved — that remains valid until EO fulfillment or EODC (Export Obligation Discharge Certificate) is obtained.
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This is where the scheme gets real. The export obligation is not a suggestion — it's a legally binding commitment.
Export Obligation = 6 × Duty Saved
"Duty saved" includes BCD and any additional duty that would have been payable but for the exemption. IGST credit (if otherwise available as ITC under GST) is typically not counted in the duty saved computation under the current FTP — but this has been a subject of litigation and DGFT clarifications. Always verify the latest position.
| Category | Period |
|---|---|
| General exporters | 6 years from authorization date |
| MSMEs (as per Udyam Registration) | 9 years (extended by DGFT) |
| Specific sectors (green tech, agri) | May get additional extensions on case-by-case basis |
You must also maintain Average Export Obligation — meaning your exports during the EO period must be over and above the average exports of the same or similar products during the 3 years preceding the EPCG authorization. This prevents companies from simply relabeling existing exports to meet the obligation.
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Units in PM-MITRA parks get enhanced EPCG benefits with extended EO periods and relaxed average EO requirements.
Following the PLI scheme for food processing, DGFT has been more liberal in granting EPCG authorizations for cold chain and food processing capital goods. APEDA-registered exporters in particular have seen faster processing times.
DGFT has implemented the EPCG dashboard on its IT platform for real-time monitoring of EO fulfillment. Annual reporting is mandatory — failure to file can trigger show cause proceedings even if you're on track with actual exports.
If you cannot fulfill EO, you can regularize by paying:
For our mango pulp exporter example: If EO is not met after 6 years, the recovery would be ₹2.4 crore (duty) + approximately ₹2.16 crore (interest at 15% for 6 years) = ₹4.56 crore. This is why you must be realistic about your export capacity before applying.
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If the HSN code on your EPCG authorization doesn't match the HSN on the Bill of Entry, customs will refuse clearance or issue a Show Cause Notice (SCN) under Section 28 of the Customs Act. This is one of the most common — and most avoidable — errors.
Use an AI-based tool like CustomsAI to cross-verify your HSN codes before filing. The platform provides duty calculations along with classification, so you can confirm the exact duty saving before you even apply to DGFT.
Many first-time EPCG users focus only on the total EO and forget the average export obligation. If your pre-EPCG export average was ₹5 crore/year and your EO is ₹14.4 crore over 6 years, you need to export ₹5 crore (average) + ₹2.4 crore (EO installment) = ₹7.4 crore per year.
Under ANF 5B, EPCG holders must submit annual performance reports to the RA (Regional Authority). Missing this triggers adverse entries on your DGFT profile and can complicate future authorizations.
Capital goods imported under EPCG cannot be sold, transferred, or even moved to a different location without prior written permission from the RA. Violation attracts proceedings under Section 111(o) of the Customs Act (confiscation) and Section 112 (penalty).
Every export shipment you want to count toward EO must have the EPCG authorization number mentioned on the Shipping Bill. Retrofitting this is possible through amendments, but it's tedious and time-consuming.
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| Parameter | EPCG Scheme | Advance Authorization |
|---|---|---|
| What's imported duty-free | Capital goods (machinery) | Raw materials/inputs |
| EO calculation | 6× duty saved | Value addition based |
| EO period | 6 years | 18 months (extendable) |
| Governed by | FTP Chapter 5 | FTP Chapter 4 |
| Typical users | Manufacturers setting up/expanding | Manufacturers with recurring input needs |
Many exporters use both schemes simultaneously — Advance Authorization for raw materials and EPCG for machinery. There's no restriction on this, provided you maintain separate EO tracking.
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If you receive an SCN — whether for EO default, classification mismatch, or valuation dispute — the response must be technically precise, citing relevant FTP paragraphs, customs notifications, and case law.
Notable case law:
If you're facing an SCN related to EPCG compliance, the CustomsAI SCN Reply tool can help you draft a structured, legally-referenced response by analyzing the notice details against applicable law.
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Yes, but with conditions. Para 5.01(d) of HBP 2023 permits import of second-hand capital goods under EPCG, provided the residual life of the machinery is at least 5 years (certified by an independent chartered engineer). The EO calculation remains the same — 6× duty saved.
You can apply for proportionate reduction of the Bank Guarantee based on EO already fulfilled. However, for the unfulfilled portion, you'll need to pay duty saved (proportionate) plus 15% interest per annum under Section 28AA of the Customs Act. DGFT may also impose penalties under FTP.
Absolutely. Food processing units — whether in Mega Food Parks, Agro Processing Clusters, or standalone facilities — are fully eligible. In fact, units registered with APEDA or MPEDA often get priority processing. The capital goods must be used for production/processing of export goods.
Under Notification No. 16/2023-Cus, both BCD and additional duties are exempt. However, the IGST exemption position has been subject to changes. As of FY 2025–26, EPCG imports are exempt from IGST as well, but you must check the latest amendment to the notification, as this has been modified multiple times. When IGST is exempt, no ITC claim arises.
Misclassification is a leading cause of EPCG-related disputes. The Indian Customs Tariff (based on HS 2022 nomenclature) has thousands of headings under Chapters 84 and 85 for machinery. You can use [CustomsAI's free HS
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