EPCG Scheme: Zero-Duty Capital Goods Import & Export Obligation Calculator Under FTP 2023

The EPCG Scheme: Your Gateway to Zero-Duty Capital Goods

If you're an exporter who needs to import machinery, equipment, or technology to boost production capacity, the Export Promotion Capital Goods (EPCG) scheme under the Foreign Trade Policy 2023 (FTP 2023) is your lever. It lets you import capital goods at zero customs duty--but comes with a legally binding export obligation you cannot ignore.

The scheme is governed by Chapter 4 of FTP 2023, read with the Handbook of Procedures (HoP). Misunderstand the obligation or fail to track it, and the penalties will wipe out your savings.

Who Can Use EPCG and What Goods Qualify?

Under FTP 2023, any exporter registered under the FTA regime (including EOUs and SEZs) can apply. You must:

• Be producing goods or services for export.
• Have exported in the preceding 12 months OR be a new exporter with a Export Promotion Certificate (EPC).
• Not be in default on any earlier EPCG licence obligations.

Eligible capital goods include:

• Plant and machinery.


• Equipment and tools (not consumables).


• Computers, software, and IT systems.


• Test and inspection equipment.


• Dies, moulds, and jigs.


• Measuring instruments.

Materials consumed during production (raw materials, fuel, spare parts) are not eligible. Nor are vehicles, furniture, or office equipment for administrative purposes.

The Export Obligation: Core Numbers You Must Know

This is where the scheme's teeth lie. Your export obligation is calculated as a multiple of the CIF value of imported capital goods.

Under FTP 2023 Chapter 4, Para 4.01, the standard obligation ratio is:

Export Obligation = 6 (CIF value of imported capital goods)

For example:

• You import machinery worth Rs.50 lakhs CIF.


• Your export obligation = 6 Rs.50 lakhs = Rs.3 crore in FOB value of exports.

You have 8 years from the date of issue of the EPCG licence to fulfill this obligation (reduced from 10 years under earlier FTP 2015-20).

Special Cases and Concessional Ratios

FTP 2023 provides lower ratios for specific sectors and regions:

• Technology-driven sectors (pharma, biotech, IT hardware): 3 CIF value.
• Specified SEZs and EOU zones: 4 CIF value (subject to conditions).
• Green technology and environmental goods: 4 CIF value.

Always check your sector classification in the FTP appendix. A lower ratio saves you Rs. crores in export pressure.

Calculating Your Obligation: Worked Example

Let's say you're a textile exporter and import spinning machinery:

• CIF value of machinery: Rs.2 crore.
• Obligation ratio (textiles, general): 6.
• Total export obligation: Rs.12 crore (in FOB value).
• Obligation period: 8 years.
• Average annual export target: Rs.1.5 crore per annum.

Your EPCG licence will specify both figures in its conditions. Any shortfall attracts penalties that exceed the duty saved.

Penalties for Shortfall: The Cost of Failure

If you fail to fulfill the export obligation by the end of the licence period, FTP 2023 Chapter 4, Para 4.04 levies:

• Customs duty on the imported goods (the duty you saved) at the rate applicable on the date of import.
• Interest at 8% per annum on the duty amount, calculated from the date of import to the date of recovery.
• Late fee (penalty under Customs Act) if recovery is made beyond the licencing period.

Worked penalty example:

• Machinery CIF: Rs.2 crore.


• Customs duty rate at import (say): 7.5%.


• Duty saved: Rs.15 lakhs.


• If shortfall discovered 2 years after licence expiry:

In many cases, the penalty exceeds the original duty saved.

How to Track and Prove Export Obligation Fulfillment

Do not assume; measure.

• Monthly tracking: Link your shipping documentation to the EPCG licence number.
• FOB value calculation: Use your invoice/Customs House Agent (CHA) advice. FOB = CIF minus freight and insurance.
• Quarterly reconciliation: Match export data from your ERP or GST returns against the EPCG obligation portal.
• Annual filing: Report progress via the Licence Holder module on the Foreign Trade Portal (e-FTP).
• Final closure: Apply for Closure of Obligation within 90 days of fulfillment. Without formal closure, authorities may not release the licence.

Documentation gold standard:

• Shipping bills (or bills of lading) showing the EPCG licence reference.


• Signed commercial invoices (buyer's acceptance).


• Bank realization proof (to confirm FOB value).


• GST invoices and Form 8 (GSTR-1 exports).

Common Pitfalls and How to Avoid Them

• Mixing goods under different licences: Always tag exports to the correct EPCG licence number. A single shipment can serve multiple licences--but only if documented clearly.
• Re-export confusion: Goods imported under EPCG cannot be re-exported as-is without licence amendment. Process them first.
• Expiry timeline: The 8-year period is non-extendable without advance approval. Applications for extension must be made before the licence expiry date, not after.
• Duty rate interpretation: The duty rate for penalty recovery is locked at the date of import, not the date of shortfall discovery. Import timing matters.

Next Steps

If you're planning an EPCG import:

• Audit your sector ratio using the FTP Appendix.
• Model the 8-year export obligation against your sales pipeline.
• Engage a CHA and CA early to structure documentation.
• Set up internal tracking from day one--not year seven.

The EPCG scheme is a powerful tool for competitiveness. But it's also a compliance contract. Get the obligation number wrong, or slack on tracking, and you'll pay twice.

I'm CA Harun Raaj, Visakhapatnam. Reach out if you're planning an EPCG licence application or need to audit an existing one.

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