Customs Duty Optimisation in India: EPCG, FTA Routes, and Legitimate Savings

Introduction

For Indian manufacturers and distributors who import raw materials, capital goods, or components, customs duty can represent 5%–25% of the landed cost of goods. In competitive B2B markets, this cost differential can determine whether a product line is viable.

What many importers do not realise is that India's Foreign Trade Policy (FTP 2023) and associated schemes offer multiple legitimate routes to either eliminate or significantly reduce customs duty obligations — without compromising compliance.

This guide covers the four most impactful customs duty optimisation tools:

1. Export Promotion Capital Goods (EPCG) Scheme

What It Does

The EPCG scheme allows importers to bring in capital goods — plant, machinery, equipment, jigs, fixtures, dies, molds, spares — at zero customs duty (including BCD, SWS, IGST for registered importers) in exchange for a commitment to fulfil an "export obligation" (EO).

Export Obligation

Under EPCG:

• 6× EO: You must export goods or services worth 6 times the CIF value of the capital goods imported, within 6 years from the date of issue of the EPCG authorisation
• Medium/small enterprises: Some categories of MSME and "green tech" products have reduced EO of 4× at 75% of normal rate

Who Should Use EPCG

• Manufacturing exporters who need to upgrade or install new production lines
• Service exporters (software, IT services, hospitality, healthcare) who import equipment
• Companies planning capital expenditure above ₹10 lakh in eligible goods

Real Savings Calculation

For a company already exporting ₹60 lakh/year, the 6× EO (₹3 crore) is fulfilled in 5 years — and the capital goods come duty-free.

Key Conditions

• Capital goods cannot be sold or transferred without DGFT approval until EO is fulfilled
• Annual instalments of EO (block obligations) must be met; defaults attract 1.5× redemption penalty
• EPCG authorisation must be obtained from DGFT before importing the goods (not retroactive)

2. Advance Authorisation Scheme

What It Does

The Advance Authorisation (AA) scheme allows import of inputs (raw materials, components, consumables) required for the manufacture of export products — at zero customs duty including BCD, SWS, ADD, CVD.

The inputs are imported against a DGFT-issued advance authorisation, and the importer must export the finished goods within the stipulated time (18 months from the date of first import).

Standard Input-Output Norms (SION)

For most standard export products, DGFT has pre-defined SION tables specifying how much input (in quantity) is needed per unit of output (export product). Importers use these norms to quantity the duty-free import entitlement.

For products not covered by SION, the importer can apply for a self-declared norm or brand rate — supported by a technical justification and certified by a CA.

Example

A company exports 10,000 units of steel components. SION for their HS code specifies 1.2 kg of CRC steel per unit. They can import 12,000 kg of CRC steel duty-free under an advance authorisation.

• Normal BCD on CRC steel: 12.5%
• If CRC steel CIF price: ₹80/kg
• Duty on 12,000 kg: 12.5% × ₹9.6L = ₹1.2L saved per shipment

Conditions

• All inputs imported must be used in the exported product (no diversion to domestic market)
• Inputs must be imported within 12 months of AA issuance
• Export obligation must be fulfilled within 18 months of first import
• EODC (Export Obligation Discharge Certificate) required on completion

3. Free Trade Agreement (FTA) Preferential Tariffs

Overview

India has signed multiple Free Trade Agreements that offer significantly reduced (or zero) basic customs duty to goods originating from partner countries. Despite being in force for years, many importers continue to pay standard MFN (Most Favoured Nation) rates — simply because they haven't verified FTA eligibility.

Major Indian FTAs

How to Check FTA Eligibility

1. Find your import product's HS code (6-digit or 8-digit)
2. Check the relevant FTA tariff schedule (available on DGFT website or Customs Tariff)
3. Verify the "Rules of Origin" criteria: FTA benefits apply only if the goods genuinely originate in the FTA partner country
4. Obtain a Certificate of Origin (CoO) from the exporting country's authorised body (e.g., SEKI in Japan, KOTRA in Korea, BOI in Thailand)

Savings Example

4. Remission of Duties and Taxes on Exported Products (RoDTEP)

What It Is

RoDTEP is a scheme that reimburses exporters for duties and taxes embedded in their export supply chain that cannot be credited otherwise — such as state levies, mandi tax, electricity duty on manufacturing, and fuel used in transport.

Unlike drawback (which directly refunds customs/excise), RoDTEP reimburses at a fixed rate (as a % of FOB value) determined by the government per product category.

How Claim Works

RoDTEP credits are issued as electronic scrips on the ICEGATE portal. These scrips can be:

• Used to pay basic customs duty on future imports
• Transferred to any other importer (tradeable, listed on recognised exchanges)

5. Combining Multiple Schemes

The most sophisticated importers combine schemes:

Compliance Cautions

1. Do not apply for schemes you cannot comply with. EPCG and AA have mandatory export obligation; failure to meet EO within the time period attracts duty + 15% interest + penalty.
2. Maintain full import documentation. Every duty-free import must have a DGFT authorisation number and matching bill of entry. Track actual consumption (AA) or export realization (EPCG).
3. Rules of Origin for FTA: Document the country of manufacture (not merely country of shipment) to support CoO claims during customs verification.
4. GST ITC must still be tracked separately. EPCG/AA exemptions cover BCD and SWS; IGST may still be paid (and claimed as ITC). Track IGST on imports in GSTR-2B Part C.

Conclusion

India's customs duty structure offers multiple mechanisms for legitimate duty reduction — through EPCG, Advance Authorisation, FTA preferences, and RoDTEP rebates. Most manufacturing and trading importers are eligible for at least one of these benefits.