Overview
As per Chapter 5 of the Foreign Trade Policy (FTP) 2023, the Export Promotion Capital Goods (EPCG) Scheme permits the domestic procurement of capital goods (from Indian manufacturers) as an alternative to importing the capital goods from abroad.
The EPCG Indian Procurement route is most beneficial when the required capital goods are readily available from domestic manufacturers (seller of capital goods). In addition to the deemed export benefits which can be claimed either by the domestic supplier or the EPCG authorization holder, the following practical advantages are available to the EPCG authorization holder:
- Faster delivery and installation of machinery.
- Easier access to after-sales service, maintenance and technical support.
- Reduced administrative burden by avoiding an international procurement and logistics cycle.
This option is particularly attractive for businesses who are in segments with strong manufacturing base, such as, textile machinery, selected packaging and food-processing equipment and general engineering machinery.
On the other hand, importing machinery that is already available in the domestic market may result in additional costs and operational challenges, such as:
- International freight and transportation expenses.
- Import-related logistics, clearance and compliance requirements.
- Longer procurement and delivery lead times.
It is important to note that the EPCG authorisation holder remains solely responsible for fulfilling all obligations under the scheme. The deemed export benefits claimed by the domestic supplier do not reduce or replace the EPCG authorization holder's responsibility to monitor export obligations, maintain compliance records and obtain timely closure of the authorisation through the Export Obligation Discharge Certificate (EODC) process.
Key facts
- Nature of the facility: Domestic procurement under EPCG is generally an alternative mode of sourcing capital goods under the same EPCG Scheme, rather than a separate variant of the scheme.
- Administering authority: The EPCG Scheme is administered by the DGFT under Chapter 5 of the Foreign Trade Policy (FTP), 2023. In case of domestic procurement of capital goods, the issuance of Invalidation Letters and Advance Release Orders (AROs), wherever applicable, is also processed through the DGFT.
- Export obligation: When the capital goods are sourced domestically (either fully or partially), the export obligation is calculated 25% less when compared to the export obligation calculated under the direct import route. The authorisation holder is required to fulfil an export obligation equivalent to six times the total duty saved amount over a period of six years, to be achieved in two blocks (1st Block: Years 1–4, 2nd Block: Years 5–6).
- At-a-glance benefit: For the EPCG authorization holder — refund of GST amount paid, if the supplier is not claiming the deemed export benefit. For the domestic supplier of capital goods — deemed export benefit, if the EPCG authorization holder is not claiming.
- Mandatory requirement: The Invalidation Letter (or ARO, where applicable) must be obtained before the domestic supplier raises the invoice to supply the capital goods. The supplier's invoice date should therefore be later than the date of issuance of the Invalidation Letter/ARO.
Eligibility
- The same categories of applicants eligible for EPCG Direct Import are also eligible for EPCG Indian Procurement, namely manufacturer exporters and merchant exporters having a supporting manufacturer. The capital goods proposed for domestic procurement must be supplied by an Indian manufacturer and must conform to the specifications approved under the EPCG Authorisation.
- Supplier should be a manufacturer of capital goods (a trader is not eligible).
To avail this facility, the following conditions should generally be met:
- EPCG Authorisation: For applying invalidation under the scheme, you must either hold a valid EPCG Authorisation or be in the process of obtaining one if you intend to procure capital goods domestically instead of importing them.
- Availability of a domestic supplier: The required machinery or equipment should be available from an Indian manufacturer and you should be able to obtain a firm proforma invoice / final invoice for the proposed procurement.
- Deemed export claim by supplier: Where the deemed export benefits are intended to be claimed by the domestic supplier, he must be capable of complying with the applicable eligibility procedures and documentation requirements.
- Compliance of capital goods: The capital goods supplied by the Indian manufacturer must satisfy the technical specifications mentioned under the EPCG Authorisation.
- Coordination with the supplier: Since domestic procurement under EPCG may involve deemed export compliance by the supplier, it is advisable to ensure that the supplier understands and can fulfil the relevant procedural requirements in a timely manner to avoid delays in the overall transaction process.
- Supplier readiness is a key commercial consideration: Where multiple domestic suppliers are involved, their selection should be based not only on the price, quality and delivery schedules, but also each supplier's familiarity with EPCG and deemed export procedures. A supplier experienced in these compliance requirements can significantly reduce documentation issues and implementation delays.
- Clear allocation of responsibilities: Before confirming the domestic supplier, both parties (supplier and the EPCG authorization holder) should clearly agree on their respective responsibilities for documentation, with reference to the Invalidation Letter or ARO (where applicable). Clear coordination at the outset helps to avoid delays during the execution of the transaction.
The following situations should be carefully evaluated before proceeding with EPCG Indian Procurement:
- Confirm the supplier's readiness in advance: Before finalising the purchase order for the procurement of domestically manufactured capital goods, confirm that the Indian supplier is willing and capable of undertaking the compliance requirements associated with the deemed exports. Addressing this only after the authorisation is issued may result in delays.
- Obtain the correct documentation: Where the transaction structure requires an Invalidation Letter or an Advance Release Order (ARO), ensure that it is obtained correctly as per the prescribed procedure. Errors in this context may affect both the supplier's eligible benefit claim and the smooth execution of the EPCG transaction.
- Mixed procurement requires separate documentation: Where an EPCG Authorisation includes both imported and domestically procured capital goods, the documentation and compliance requirements for each procurement route should be maintained separately. An Invalidation Letter applies only to the domestic procurement portion and does not cover the imported capital goods.
- Consider the supplier's experience: If the domestic supplier is undertaking a deemed export transaction for the first time, additional time may be required to complete the procedural and documentation requirements. This should be factored into the procurement and project timelines.
Benefits and savings
The principal benefit of EPCG Indian Procurement is that it enables the procurement of eligible capital goods from domestic manufacturers while extending the benefits of the EPCG Scheme. Although the procurement route differs from direct imports, the transaction continues to provide substantial savings by treating the domestic procurement as a deemed export facility — but that saving only stays realised if the export obligation on the authorisation is tracked correctly across both six-year blocks.
Same domestic-purchase benefit, two very different states
Your bond and bank guarantee stay encumbered while the six-year, two-block Export Obligation runs. The GST refund or deemed-export benefit claimed on your domestically-purchased capital goods is real value today, but DGFT can still call on the bond if the export obligation isn't discharged and evidenced across both blocks — nothing is finally "yours" yet.
After fulfilling the export obligation across both blocks, you apply for the EODC to formally close the authorisation and release any bond or bank guarantee. The duty/GST benefit claimed on your Indian-sourced capital goods is now a closed, audited saving that can't be reopened or challenged on this authorisation.
In addition to that financial benefit, domestic procurement offers several operational and commercial advantages:
Duty benefit without importing
Instead of importing capital goods, you can procure them from an Indian manufacturer under your EPCG Authorisation. The domestic supplier supplies the goods as a deemed export and may claim the applicable deemed export benefits, while you receive the EPCG benefit of procuring the capital goods without the payment of customs duty.
25% lighter export obligation
For indigenous procurement under the EPCG route, the Specific Export Obligation is 25% lower than that applicable to direct imports. The Average Export Obligation, where applicable, remains unchanged.
Shorter delivery lead time
Domestic sourcing generally shortens procurement timelines by eliminating international shipping, customs clearance and other import-related formalities.
Local support, less downtime
Indian manufacturers typically provide quicker access to installation support, maintenance services, warranty assistance and spare parts, thereby reducing equipment downtime.
No international freight costs
Domestic procurement avoids international freight, insurance, port handling charges, customs clearance expenses and other import-related logistics costs that may arise when sourcing machinery from overseas.
Easier to manage end-to-end
Dealing with a domestic supplier generally makes communication, technical discussions, contract administration, warranty claims and dispute resolution more convenient than coordinating with an overseas manufacturer.
None of the above changes whether the machinery is genuinely the right technical fit for your production need — but it does determine whether the domestic-purchase benefit stays realised or turns into a dispute at the EODC stage.
A practical example
Click through the situation and how it gets resolved.
Case profile: a Pune-based automotive components manufacturer
Intends to procure a hydraulic press under the EPCG Scheme. Instead of importing the machine from Europe, the company identifies an Indian manufacturer capable of supplying equipment with equivalent technical specifications, expecting to reduce freight costs, shorten delivery timelines, and benefit from local after-sales support — three things need to line up before the deal can close.
Block 1 progress
Two years into the first four-year block of the six-year Export Obligation period.
Export obligation discharged
30% discharged so far against the duty saved on the press, evidenced by shipping bills and BRCs on file for related export orders.
Invalidation Letter
Still pending — the domestic supplier is ready to invoice, but cannot do so under deemed-export provisions until DGFT issues the Invalidation Letter.
Invalidation Letter
Apply for and obtain the Invalidation Letter from DGFT before the supplier raises any invoice, so the supply qualifies for deemed-export treatment.
Supply, installation & CEC
Once the Invalidation Letter is issued, the supplier invoices and delivers the press; after installation, obtain the Installation Certificate and, where required, the Chartered Engineer Certificate.
Block-wise EO tracking
Track the export obligation across both six-year blocks and file the EODC once the full obligation is discharged and evidenced, releasing the bond/bank guarantee.
Actual timelines, documentation and eligibility depend on your specific authorisation. This illustration is generic, meant to show how the pieces interact — please confirm with our team before you rely on any of it. If the prescribed export obligation cannot be completed within the stipulated period, businesses may apply for an EPCG Export Obligation Extension subject to the applicable provisions of the Foreign Trade Policy and DGFT guidelines.
Documents required
Indian Purchase route requires the following documents, in addition to the standard EPCG authorisation documents.
Supplier documents
- Proforma Invoice or Final Invoice from the Indian supplier
- Supplier's GST registration
EPCG & invalidation
- Invalidation Letter
- Advance Release Order (ARO), if applicable
Certification
- Chartered Engineer Certificate (CEC) to confirm machinery specification
- Installation Certificate after commissioning
GST documentation
- GST documentation for the domestic supply transaction
Your exact checklist, confirmed at kickoff
Exact documentation can vary depending on whether an ARO is used alongside the Invalidation Letter, and on your supplier's familiarity with deemed-export procedures; we confirm the precise checklist for your specific transaction at the start of engagement. Businesses should also ensure a valid EPCG Authorisation is in place, or in process, before finalising domestic procurement.
How it works
A five-stop route, worked in sequence on a typical file. Click Drive to next stop — or click directly on the next glowing stop — to move the car and reveal that stage. Two practices run continuously alongside the whole route, shown below it.
Technical fit & commercial terms
We confirm the domestic supplier's machinery matches your technical specification and their willingness to participate in the deemed-export process, and settle upfront who — you or the supplier — will claim the deemed export benefit.
EPCG Authorisation
We apply for a fresh EPCG authorisation, or amend an existing one, so it correctly reflects domestic sourcing of the capital goods.
Invalidation Letter / ARO
We apply for and obtain the Invalidation Letter from DGFT — and an Advance Release Order (ARO) where your transaction structure requires one — before your supplier raises any invoice.
Supply, installation & certification
Once the supplier delivers and installs the machinery with genuine use, we help you obtain the Installation Certificate confirming it is in place at your declared premises.
Export obligation tracking & EODC
We track your export obligation across both six-year blocks and file for EODC once it's fully discharged, to release your bond or bank guarantee.
These two practices aren't a separate stage — we run them continuously across all five, on every file, regardless of which stage it's currently in.
Supplier readiness checks
Before finalising the purchase order, we confirm the Indian supplier is willing and able to undertake the deemed-export compliance requirements — addressing this only after the authorisation is issued tends to cause avoidable delays.
Mixed-procurement documentation control
Where an authorisation includes both imported and domestically procured capital goods, we keep the documentation and compliance for each source tracked and evidenced separately, since the Invalidation Letter covers only the domestic portion.
EPCG Direct Import vs EPCG Indian Purchase
The basic decision point is the EPCG duty benefit of sourcing capital goods domestically. Neither option is inherently better — the right choice depends on whether the specific machinery you need is genuinely available domestically at the quality and lead time you require.
| Factor | EPCG Direct Import | EPCG Indian Purchase |
|---|---|---|
| Procurement source | Overseas manufacturer / supplier | Indian manufacturer (domestic supplier) |
| Duty benefit | Exemption from customs duty on capital goods | Refund of GST (if supplier not claiming deemed export benefit) / Deemed export benefit for supplier |
| Specific Export Obligation | 6 times duty saved over 6 years (two blocks) | 25% lower than direct import (75% of direct import EO) |
| Delivery lead time | Longer (international logistics, customs clearance) | Faster (domestic supply) |
| After-sales support | May be slower / expensive | Easier access, quicker response |
| Administrative burden | Higher (international procurement, shipping, customs) | Lower (domestic procurement) |
| Key documentation | Bill of Entry, Shipping Bills, etc. | Invalidation Letter/ARO, Proforma Invoice, Installation Certificate, CEC |
Scroll left to see the EPCG Indian Purchase column
EPCG Indian Purchase, explained
A quick video walkthrough of how EPCG Indian Purchase (Invalidation) works. Tap play to watch here, or open it directly on YouTube.
Prefer YouTube? Watch it on youtube.com in a new tab.
Frequently asked questions
It's an alternate route under the EPCG scheme by which you can source the required capital goods domestically from an Indian supplier instead of importing the same from other countries. Either the domestic supplier or the EPCG authorization holder can claim the deemed export benefits for supplies made against your EPCG authorisation.
The eligible benefit is limited to refund of ITC.
An invalidation letter is an official document issued by DGFT against your EPCG authorisation which legally allows procurement of domestically manufactured capital goods in lieu of the imported capital goods. Without a valid invalidation letter, your domestic procurement of capital goods may not be considered as a deemed export and no deemed export benefits will be allowed for the same.
An ARO is another type of domestic sourcing of capital goods which provides duty drawback benefit to the domestic supplier.
Yes, in case of domestic sourcing of capital goods, only 75% of the EO related to the Indian purchase domestic capital goods is considered.
Yes, before committing commercially with your Indian supplier it is very important to confirm their willingness for the additional compliances required with reference to the documentation and GST treatment.
Choice will depend on the genuine availability of the specific machinery domestically which matches your actual need. The common reasons are: faster delivery, easier local after-sales support, spares availability, and avoiding the complexity of an international shipment.
Yes, to prove the machinery is installed in your declared premises and genuinely used for its intended purpose, an Installation Certificate is required, same as for EPCG Direct Import.
Yes, but you must maintain the export obligation and documentation for each source separately, and they need to be tracked separately.
At the time of finalising the order, it is important to confirm the GST documentation and GST treatment of the deemed export, which is part of the standard paperwork and compliance for the domestic transaction along with your EPCG and invalidation-letter documents.
After discharge of the export obligation in full, file your EODC application by attaching the evidence of shipping bills and BRCs to release your bond/bank guarantee. EODC closure process is the same as that for EPCG Direct Import.
Official DGFT / CBIC source notifications
- Foreign Trade Policy (FTP) 2023, Chapter 5 — Export Promotion Capital Goods (EPCG) Scheme.
- DGFT official portal (dgft.gov.in) — Invalidation Letter and ARO procedures, relevant Circulars / Public Notices / Notifications.
