The Export Promotion Capital Goods (EPCG) Scheme is one of the most powerful tools Indian businesses can use to reduce costs, upgrade technology, and boost exports. Whether you’re a manufacturer(check funding scheme), a service provider, an MSME, or even a startup planning to enter global markets, EPCG can dramatically reduce your upfront investment in machinery and equipment.

In this guide, you’ll learn what EPCG is, why it exists, how it works, who can benefit from it, and how to apply explained in simple, practical language suited for business owners.

What Is the EPCG Scheme? (Meaning & Overview)

The Export Promotion Capital Goods Scheme, run by the Directorate General of Foreign Trade (DGFT), allows Indian exporters to import capital goods at zero or concessional customs duty.
Capital goods include:

• Machinery & equipment
• Computer systems & software
• Spares, moulds, dies, jigs & fixtures
• Tools and testing equipment

These imported goods must be used for pre-production, production, or post-production to manufacture export goods or provide export services.

In simple words:
You get expensive machinery duty-free today, and in return, you commit to exporting more over the next 6 years.

A Quick Look at the Scheme’s History

• 1990s: Concept introduced for export promotion
• April 1, 2015: Officially restructured under Foreign Trade Policy (FTP 2015–2020)
• 2024: Significant amendments made to reduce compliance and simplify reporting

Over the years, EPCG has become one of India’s most effective tools for boosting manufacturing competitiveness.

Objectives of EPCG (Explained Simply)

The EPCG Scheme aims to:

✔ Reduce machinery import cost

Businesses save 10–25% (sometimes more) because customs duties are waived.

✔ Promote technology upgradation

Companies can bring in world-class machines and equipment.

✔ Improve export competitiveness

Lower cost + better technology = Better prices and higher quality.

✔ Support MSMEs and startups

Lower upfront costs mean more businesses can scale faster.

✔ Encourage sustainable manufacturing

Green-tech imports enjoy relaxed export obligations.

Why EPCG Is Especially Valuable for MSMEs & Startups?

Benefits for MSMEs

• Lower cost of importing advanced machinery
• Improved cash flow (no duty payment upfront)
• Faster scale-up capability
• Easier technology access

Benefits for Startups

• Helps overcome high entry barriers
• Supports quick adoption of cutting-edge machinery
• Allows competitive pricing in global markets
• Six years to fulfill export obligation gives breathing room

However: Research shows 65% of MSMEs are unaware of EPCG benefits, meaning a huge untapped opportunity.

Key Benefits of the EPCG Scheme

1. Zero or Concessional Customs Duty

You pay zero Basic Customs Duty on capital goods. This can save:

• 5–25% on machinery costs
• Crores of rupees for medium and large equipment imports

2. IGST/GST Relief (Earlier Periods)

IGST exemption existed till March 31, 2020.
Today, IGST may be paid but can be claimed as input tax credit.

3. Extended Export Obligation Timeline

EPCG gives 6 years to complete export obligations much longer than most government schemes.

4. Flexibility in Sourcing

You can:

• Import machinery
• Or buy machinery domestically (treated as deemed export)

Domestic procurement even comes with a 25% reduced export obligation.

5. Support for Service Providers

Hotels, hospitals, IT companies, logistics firms, etc., can also use EPCG.

6. Clubbing of Authorizations

Multiple EPCG authorizations can be grouped for easier compliance.

7. Support for Green Technology

Eco-friendly machinery enjoys relaxed export obligations.

What Types of Capital Goods Are Covered?

Eligible items include:

✔ Production Machinery

• Textile machines
• CNC machines
• Printing machines
• Chemical processing reactors

✔ Computer Systems & Software

• Servers
• Networking equipment
• CAD/CAM software

✔ Spares & Components

For maintenance of imported machinery.

✔ Tools, Moulds & Fixtures

Essential for production industries.

✔ Refractories & Catalysts

Used in chemical and industrial processes.

❌ Not Allowed

• Second-hand machinery
• Used/Refurbished equipment
• Office furniture
• Vehicles

Who Can Apply? (Eligibility Criteria)

The scheme is open to:

✔ Manufacturer Exporters

Companies producing goods for export.

✔ Merchant Exporters

Exporters tied to manufacturing units.

✔ Service Providers

IT, hospitality, healthcare, logistics, etc.

✔ MSMEs & Startups

Especially encouraged under simplified rules.

Basic Requirements:

• Valid IEC (Import Export Code)
• GST registration
• Import capital goods for export-related use
• Good financial standing
• Not on RBI or DGFT caution list

Understanding Export Obligation (The Most Important Part)

When you import machinery duty-free, the government expects you to export goods or services worth a certain value.

Types of Export Obligations

1. Specific Export Obligation (SEO)

You must export 6 times the duty saved, within 6 years.

Example:
Duty saved = ₹10 lakh → Export obligation = ₹60 lakh

2. Average Export Obligation (AEO)

You must maintain your average past export performance.

How Can You Fulfill Export Obligation?

• Physical exports
• Deemed exports
• Service exports
• Royalty payments received in foreign currency

How to Apply for EPCG: Step-by-Step Online Guide?

1. Visit www.dgft.gov.in and register
2. Update business profile
3. Open EPCG application (ANF-5A)
4. Fill details of business, machinery & export plans
5. Upload documents
6. Attach Chartered Engineer Certificate
7. Submit with Digital Signature
8. Wait for RA approval (3–7 days)
9. Register authorization at customs
10. Import machinery duty-free

Documents Required

Some of the essential documents include:

• IEC certificate
• GST registration
• PAN & Aadhaar
• Purchase order/quotation for machinery
• Chartered Engineer Certificate
• Bank guarantee
• Export invoices & past performance
• Factory layout & installation plan

Duty Savings Explained (Simple Example)

If Machinery Cost = ₹1 crore

Typical duty (BCD + ACD + Cess) = 20%

Without EPCG:
You pay ₹20 lakh in duty.

With EPCG:
You pay ₹0 duty.

Total savings = ₹20 lakh
This amount becomes your duty-saved value, and your export obligation becomes ₹1.2 crore (6×).

How EPCG Helps Business Growth

✔ Reduces production costs

✔ Boosts product quality

✔ Helps meet global standards

✔ Supports scaling & expansion

✔ Improves cash flow

✔ Encourages modernization

Many businesses have doubled or tripled their exports within 3–5 years after using EPCG.

Common Mistakes to Avoid

• Incomplete documentation
• Wrong HS code
• Delayed installation certificate
• Not meeting 50% EO in first 4 years
• Importing machinery after authorization expiry
• Not maintaining proper export records

Penalty for Non-Compliance

If export obligations are not fulfilled:

• You must repay the entire duty saved
• PLUS 15% annual interest
• License may be suspended

Penalties can become very large, so planning is essential.

FAQs on EPCG Scheme

Q1. Who is eligible for the EPCG scheme?

Any manufacturer exporter, merchant exporter with supporting manufacturer, service provider, MSME, or startup with valid IEC can apply.

Q2. What is the export obligation under EPCG?

You must export goods/services worth 6× the duty saved, within 6 years.

Q3. Is second-hand machinery allowed?

No. Only brand-new machinery is eligible.

Q4. Can service providers like IT companies or hospitals use EPCG?

Yes. Service providers can import equipment (servers, medical devices, hotel equipment) and fulfill export obligations through foreign payments.

Q5. What happens if I fail to meet the export obligation?

You must repay the duty saved plus 15% interest from the date of import.

Q6. How long does it take to get EPCG authorization?

Typically 3–5 working days for complete applications.

Q7. Can MSMEs apply without prior export history?

Yes. MSMEs with confirmed export orders or supporting documentation can apply.

Q8. Is GST exempt under EPCG?

IGST was exempt earlier; now IGST must be paid but is claimable as input tax credit.

Conclusion

The EPCG Scheme is a powerful opportunity for Indian businesses to:

• Reduce machinery cost
• Upgrade technology
• Expand production
• Improve global competitiveness
• Increase exports

With proper planning and compliance, EPCG can be a game-changer especially for MSMEs and fast-growing startups.

If you're planning to expand your manufacturing or service capabilities, EPCG is one of the smartest ways to reduce costs and grow internationally.