How to take advantage of India's Export Promotion Capital Goods (EPCG) scheme

What is the EPCG scheme for?

India is rather keen to expand its own manufacturing industry, therefore it has developed several incentives for firms to invest in the nation - one of the most important for many firms is the Export Promotion Capital Goods (EPCG) scheme.

The EPCG scheme is designed to encourage businesses to produce goods within India that can then be exported around the world. It allows businesses to import capital goods for use in manufacturing into the country without needing to pay customs duties. In many cases, qualifying products attract zero duties, while others benefit from a concessionary rate.

Goods eligible for zero duties include machinery, spare parts and other tools essential to the manufacturing process, from computer systems to moulds and jigs. 

However, in order to take advantage of this, firms will need to commit to exporting finished goods with a value of at least six times the amount of duty saved on the initial imports.

This export obligation (EO) must be achieved within six years of achieving EPCG authorization. If the importer fails to meet this obligation, it will be required to pay back the waived customs duties, plus interest as prescribed by customs authorities.

There are incentives available to encourage companies to fast-track these exports. If an authorization holder is able to fulfil 75 per cent or more of their specific EO in less than half of the agreed EO period, the remaining 25 per cent will be waived. There is also a provision to boost the export of green technology products. Again, businesses will only have to export 75 per cent of the agreed EO for these items.

Which benefits does the EPCG bring to trade and how to take advantage of it?

In essence, the scheme is designed to facilitate the production of quality manufactured goods and encourage the export of these items, thereby increasing the amount of foreign currency coming into India's coffers and boosting the country's process in international trade markets.

It should be noted, however, that being able to fulfil the EO is an essential precondition of the EPCG scheme and sometimes hard to achieve. This is something that heavy exporters are naturally better placed to meet, so importers and exporters must consider their likelihood of meeting this requirement. 

This may mean it is a suitable scheme only when producing goods in significant volumes, and in areas where firms are confident of finding reliable export markets.

In order to take advantage of these reduced import duties, businesses must be granted a licence from the Director General of Foreign Trade. Along with this, applicants must file a range of supporting documents. These include:

  • Import Export Code (IEC)
  • Registration cum Membership Certificate (RCMC)
  • Digital signature
  • Registration certificate from Tourism Department
  • Pan Card
  • Excise Registration (if registered)
  • GST Registration Certificate
  • Proforma Invoice
  • Brochure
  • Self-Certified Copy + Original of Certificate of Chartered Accountant
  • Self-Certified Copy + Original of Certificate of Chartered Engineer

Once approved, EPCG authorization is valid for imports for 18 months from date of issue and cannot be revalidated thereafter. This is also when the EO start date is taken from. 

In exceptional circumstances, exporters may be able to claim an extension to this if they are set to miss their obligations. However, they will have to present evidence that any failure to meet the EO is down to external factors beyond the exporter's control.

If firms are looking to take advantage of EPCG to reduce their import duties, they should also ensure they have the right customs software solutions to ensure they can remain in compliance with all their responsibilities. 

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