EPCG Scheme: Import Capital Goods at 0% Duty — Complete Guide 2026

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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What is the EPCG Scheme?

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:

Import of capital goods (including CNC machines, packaging lines, cold chain equipment, food processing machinery, testing instruments, etc.) at 0% customs duty
This covers both Basic Customs Duty (BCD) and the duty component that would otherwise apply — savings that can run into crores for large machinery imports

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.

Key Legal References

| 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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Who is Eligible for the EPCG Scheme?

Eligibility is broader than most importers realize. Under Para 5.01 of FTP 2023, the following entities can apply:

Manufacturer-exporters with a valid IEC (Importer Exporter Code)
Merchant exporters tied to a supporting manufacturer
Service providers (including hotels, hospitals, and IT companies)
EOU/SEZ units (with certain restrictions)
Common Service Providers (CSPs) designated by DGFT

Specific Relevance for Food Businesses

Food processing companies are among the largest beneficiaries of EPCG. If you're importing:

Fruit/vegetable processing lines
IQF (Individual Quick Freezing) equipment
Aseptic packaging machines
Dairy processing plants
Cold storage compressors and refrigeration units
Spice grinding and sterilization machinery
FSSAI-compliant testing and quality control instruments

...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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How to Apply for an EPCG Authorization

Step 1: Obtain IEC and RCMC

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).

Step 2: File Application on DGFT's Online Portal

Applications are filed through the DGFT online module at dgft.gov.in. The application form is ANF 5A.

Key documents required:

Self-certified copy of IEC
RCMC
Proforma invoice or purchase order for capital goods
Certificate from the applicant's Chartered Accountant
Details of export performance for the last 3 years
Specific CIF value and HSN code of each capital good

> 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 Indiapaar 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).

Step 3: Receive Authorization

DGFT issues the EPCG authorization electronically. The authorization specifies:

Description and HSN code of permitted capital goods
CIF value allowed
Export obligation amount and timeline
Port of registration

Step 4: Import and Clear Goods

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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Understanding Export Obligation (EO) Under EPCG

This is where the scheme gets real. The export obligation is not a suggestion — it's a legally binding commitment.

How EO is Calculated

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.

EO Fulfillment Period

| 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 |

What Counts Toward EO?

Direct exports of goods/services manufactured using the imported capital goods
Deemed exports (supplies to EOU/SEZ/projects funded by multilateral agencies)
Export of goods manufactured by the same IEC holder — the capital goods don't have to be the only input

What Does NOT Count

Third-party exports without proper endorsement on the EPCG authorization
Domestic sales (unless qualifying as deemed exports)
Exports made before the date of EPCG authorization

Average EO Requirement

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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Recent Changes and Policy Updates (2024–2026)

PM Mega Integrated Textile Region (PM-MITRA) Benefit

Units in PM-MITRA parks get enhanced EPCG benefits with extended EO periods and relaxed average EO requirements.

Dairy and Food Processing Push

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.

Digital Monitoring

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.

Regularization of Default (Para 5.11 of HBP)

If you cannot fulfill EO, you can regularize by paying:

Duty saved + 15% interest per annum from the date of import to the date of payment
Calculated under Section 28AA of the Customs Act, 1962

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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Common Mistakes and How to Avoid Them

1. Wrong HSN Classification on the Authorization

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 Indiapaar 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.

2. Ignoring Average Export Obligation

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.

3. Not Filing Annual Reports

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.

4. Transferring or Relocating Capital Goods Without Permission

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).

5. Not Linking Shipping Bills to EPCG Authorization

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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EPCG vs. Advance Authorization — Which Should You Choose?

| 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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Handling Show Cause Notices Related to EPCG

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:

Vikas Spinners v. DGFT (2019) — Tribunal held that genuine difficulties in export markets can be a mitigating factor in EO default proceedings
Rajasthan Spinning & Weaving Mills v. UOI (2009) — SC — Established that procedural lapses by the importer should be viewed differently from fraudulent intent
Thermax Ltd. v. CC Pune (2017) — Classification disputes on capital goods under EPCG should be resolved in favor of the importer when there is a genuine ambiguity

If you're facing an SCN related to EPCG compliance, the Indiapaar SCN Reply tool can help you draft a structured, legally-referenced response by analyzing the notice details against applicable law.

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Step-by-Step Checklist: Using EPCG in 2026

✅ Confirm eligibility (valid IEC + RCMC)
✅ Identify capital goods with correct HSN classification (verify on Indiapaar)
✅ Calculate duty savings and realistic export obligation
✅ Evaluate whether your export projections can sustain average EO + specific EO
✅ File ANF 5A on DGFT portal with complete documentation
✅ Receive EPCG authorization
✅ Execute Bond + Bank Guarantee with customs
✅ Import and clear goods under Notification 16/2023-Cus
✅ Install capital goods at the declared premises
✅ Link all export Shipping Bills to EPCG authorization number
✅ File annual performance reports (ANF 5B)
✅ Apply for EODC after fulfilling 100% EO

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Frequently Asked Questions (FAQ)

Q1: Can I use EPCG for importing second-hand machinery?

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.

Q2: What happens if I partially fulfill my export obligation?

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.

Q3: Can a food processing company in a Mega Food Park use EPCG?

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.

Q4: Is IGST payable on EPCG imports?

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.

Q5: How do I verify the correct HSN code for my machinery before applying for EPCG?

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 [Indiapaar's free HS