Framework for Export Promotion Capital Goods- EPCG
Core Statutory Purpose & Negative List Regulation
Govt of India, to increase export of services/goods from India to foreign countries, has started this scheme in which the custom duty to be paid on import of certain capital goods shall be charged at zero rate if the importer of such goods manages to fulfil certain export obligations. Directorate General of Foreign Trade (DGFT) vide Public Notice No. 47/2015-2020 issued on 6th December 2017 have put certain capital goods on the negative list i.e., these goods cannot be imported under the EPCG scheme. Examples being construction materials, airport ground handling equipment etc.
The importer of capital goods shall have to commit to a revenue generation in foreign currency at least 6 times of the Duty saved within a span of 6 years from the issue of the EPCG license. In case license holders are not able to fulfil their obligations (both Block Obligation (BO) or Export Obligation (EO)) then they have the option of applying of extension also.
❖ EPCG Scheme End-to-End Operational Lifecycle
The entire procedural flow from authorization, duty exemption, block monitoring, extension, to redemption or adjudication is illustrated in the structural diagram below:
Authorisation fails after 18 months / validity window
Apply for formal closure of license
• Pay Duty with 15% interest p.a.
• OR Apply to EPCG Committee (PRC)
1. What is EPCG? Concept & Regulatory Aegis
As the name suggests, it’s a scheme to promote export, but what is the meaning of the next two words i.e. Capital Goods in relation to Export promotion? Well, the Government of India, to increase export of services and goods from India to foreign countries, has started this scheme in which the custom duty to be paid on import of certain capital goods shall be waived off if the importer of such goods manages to fulfil certain export obligations.
The scheme is formulated and maintained by the Directorate General of Foreign Trade (DGFT) under the aegis of the Union Ministry of Commerce & Industry.
Statutory Validity Period for Import:
EPCG authorization shall be valid for import for 24 months from the date of issue of authorization i.e., post the authorisation to import the goods under EPCG scheme, the applicant needs to purchase and import the same within 24 months of the authorisation date.
2. How Does the Scheme Work? Export Obligation & Block Obligation
The importer of capital goods shall have to commit to a revenue generation in foreign currency at least 6 times of the Duty saved within a span of 6 years from the issue of the EPCG license. This 6 times obligation is called Export Obligation (EO).
The importer also has to at least satisfy 50 percent of the EO by the end of 4th year. This first period of 4 years is designated as the first block and hence this 50 percent obligation is called Block Obligation (BO). The remaining two years are called the second block.
- First Block (End of Year 4): The importer at the end of first block needs to submit necessary documents to the local Regional Authority (RA) to support his claim of fulfilling the BO (at least 50% of total EO).
- Second Block (End of Year 6): Similarly, he has to submit necessary documentation for the complete 100% fulfilment of EO at the end of 6 years.
The Central Government has in recent years provided many benefits to the North Eastern regions/states of India to promote and aid their economic development. In line with that vision, the requirement for fulfilment of specific EO has been reduced to 25 percent for all North Eastern States. The exact same benefit has also been made applicable for all eligible units situated in the Union Territory of Jammu and Kashmir.
3. Pre-Requisites and Process for Applying EPCG
The primary document requirement for applying for EPCG licenses is the holding of an Import Export Code (IEC) issued by the DGFT to the importer. After the issuance of the IEC to an importer, his digital profile is created on the DGFT portal through which he can submit applications for EPCG licenses.
All submissions must be made via the official DGFT portal (https://www.dgft.gov.in) using the login credentials created during the IEC application. The application is examined and processed by the local Regional Authorities (RA).
Key Document Checklist for E-Filing:
4. Dual Economic Value: Benefits to Importers vs. Indian Government
How the Scheme Benefits the Importer
EPCG is a boon for businesses requiring heavy or large numbers of capital goods that are unavailable in the domestic market or more feasible to import from outside India (chiefly manufacturing industries, but also trading and service industries relying on heavy machinery) where a large volume of sales is targeted for export.
Most businesses require capital goods at the inception of their lives—precisely when they are shortest of liquid funds and dependent on promoter capital infusions. Waiving customs duty preserves substantial cash, allowing it to be channeled immediately to meet vital working capital requirements.
How the Scheme Benefits the Indian Government
The Indian Government requires massive inflows of foreign currencies to finance critical national imports, such as crude oil and defence equipment. By offering complete customs duty waivers, the government leverages importers to generate 6 times the duty saved in foreign currency revenues, creating a powerful multiplier for foreign currency reserves.
Furthermore, if an importer fails to meet the Export Obligation, the entire duty saved must be paid back with statutory penal interest. Therefore, the exchequer is fully safeguarded against loss of revenue.
5. Methods Through Which Foreign Income is Realised
Under EPCG regulations, export obligations can only be satisfied through validly documented international payment inflows against exporter invoices. The 4 principal routes and their acceptability are:
1) Direct Bank Credit (Most Preferred Route)
This is the most desired way to receive funds, as it entails obtaining Foreign Inward Remittance Certificates (FIRC) or Bank Realisation Certificates (BRC / E-BRC) and corresponding documentation directly from the banking channel. These provide ironclad verification to produce to the DGFT / RA during license closure.
2) Forex Credit Card (Common in Medical Tourism)
Where foreign recipients are in India (e.g., international patients travelling to India for medical tourism) and swipe foreign credit cards at the entity’s terminal. While a direct Forex Realisation Certificate is not issued, entities can procure a specific certificate from their acquiring bank proving that an inward foreign exchange transaction occurred. This is accepted by DGFT / Local RA to approve the EO claim.
3) Payment via Cash / INR (Highly Discouraged / Complex)
If foreign buyers pay in INR, documentation is required proving that the INR was officially converted through an Authorised Dealer (AD) before disbursement. Proving this to authorities is exceptionally difficult because ADs frequently claim benefits under other DGFT incentive licenses, and DGFT prohibits double benefit claims on the same transaction. Importers should avoid accepting direct cash under EPCG.
4) Transfers via Local Agents / Relatives / Acquaintances (Strictly Ineligible)
Domestic receipts transferred through local agents or relatives must be strictly avoided. It is nearly impossible to substantiate a legitimate inward foreign exchange remittance against the commercial invoice, and such transactions will not be counted toward EO fulfilment.
Strategic Recommendation: Full Fledged Money Changer (FFMC) License
For units handling substantial volumes of walk-in foreign clients who prefer cash or local currency exchange (such as multispeciality hospitals treating international medical tourists), the business should secure an FFMC License from the Reserve Bank of India (RBI).
An FFMC is authorized by the RBI to purchase foreign exchange from NRIs and foreign nationals in exchange for INR, and sell foreign currency for travel purposes to visitors abroad. Entities can obtain their own direct FFMC license or associate with an existing Authorised Dealer (AD) to facilitate verified foreign currency collection directly on-site.
6. EO & BO Extensions: Framework & Practical Illustrated Case Study
Where authorization holders are unable to fulfill their Block Obligation or final Export Obligation within statutory periods, the Foreign Trade Policy provides formal relief mechanisms through extension applications.
Penalties for Final Non-Compliance
If, even after the expiration of allowable EO extensions, the importer is unable to fulfill the required Export Obligation, the entire duty saved must be remitted back to customs authorities accompanied by mandatory penal interest of 15 percent per annum. This interest is chargeable retrospectively from the original date of duty deferral (the date of capital goods import).
7. Redemption of EPCG License (Closure / EODC)
Post completion of the 6th year (or 7th/8th year if extensions were secured), the authorization holder must apply for formal redemption (closure) of the license. This involves providing the jurisdictional RA with comprehensive certified statements of foreign revenue earned during the license tenure.
The redemption application is submitted electronically via E-Form ANF-5B. Key statutory enclosures required for verification include:
When the Dealing Hand (DH) at the local RA is satisfied with all documentation, the authority formally issues the Export Obligation Discharge Certificate (EODC) and closes the license.
8. EPCG Policy Relaxation Committee (PRC / EPP)
The EPCG Policy Relaxation Committee (PRC), also styled as Exemption from Policy/Procedures (EPP), is an empowered statutory body. In public interest, the DGFT may pass orders or grant exemptions, relaxations, or relief as deemed fit on grounds of genuine hardship and adverse impact on trade to any person or class of persons from any provision of the Foreign Trade Policy (FTP) or Handbooks of Procedure.
The PRC is based at DGFT Headquarters (New Delhi) and advises the DGFT on specific individual hardship requests or matters of general public interest relating to Capital Goods and EPCG schemes.
Application & Form
Applications to the PRC are filed online via Form Ayat Niryat Form -2D (ANF-2D). If satisfied, the PRC passes an affirmative order directing the local RA to grant procedural relaxation.
Infinite Reviews & Personal Hearing
If aggrieved, applicants can file review applications without numerical limit (infinite times). Applicants may opt for a personal hearing to represent their case, though personal hearings are entirely optional.
PRC Statutory Fee Schedule
- Fresh Application: ₹ 2,000
- Review Application: ₹ 5,000 (payable per review filed)
Facility of Policy Clubbing
An applicant may also apply to the PRC for relaxation to enable clubbing of different licenses to fulfill composite EO targets. As per DGFT guidelines, policy clubbing refers to combining two or more EPCG authorisations issued to the same authorisation holder through a regularized institutional process.
Conclusion: Strategic Role in India’s Export Architecture
EPCG licenses represent one of the most beneficial instruments issued by the Government of India to promote exports and international trade competitiveness. It relieves capital constraints for emerging and modernizing enterprises while anchoring foreign exchange inflows.
Substantial refinements and modernizations are expected as the government rolls out its long-awaited new Foreign Trade Policy (FTP). While the earlier FTP covered 2015–2020, its operational span was extended up to 31st March 2022 in light of Covid-19 disruptions and dynamic global trade developments.