A Practical Guide to EOU Scheme Benefits
An Export Oriented Unit (EOU) is a manufacturing or service unit approved under Chapter 6 of the Foreign Trade Policy 2023 to export its production, with limited sales allowed in the Domestic Tariff Area (DTA). In return it can import or procure inputs and capital goods without paying customs duty and IGST, under the conditions of the scheme. That is a customs and cash-flow benefit, not an income-tax holiday: the old EOU profit deduction under section 10B has not been available for assessment year 2012-13 onwards. The scheme is also one of the most compliance-intensive: it carries a net foreign exchange (NFE) positive obligation, customs bonding, quarterly and annual reports to the Development Commissioner and Customs, and limits on what can be sold in India that every unit must manage with precision. PNPC Global has advised export-oriented manufacturers across India — in textiles, engineering, electronics, pharmaceuticals, and food processing — on setting up EOU status, maximising the benefit package, and maintaining the continuous compliance required to keep the licence in good standing.
Understanding the Service
An Export Oriented Unit (EOU) is a manufacturing or service unit established under the EOU scheme governed by Chapter 6 of the Foreign Trade Policy (FTP) and the related customs rules and notifications, with the primary obligation to export its entire production. Applications go to the Development Commissioner (DC), and approval is given by the Unit Approval Committee or the Board of Approval depending on the case; software and electronics hardware park units (STP and EHTP) are approved by an officer designated by the Ministry of Electronics and Information Technology. An EOU operates as a bonded unit: goods imported or procured for it sit in the customs bond, and duty becomes payable only when they are cleared into the Domestic Tariff Area (DTA) instead of being exported.
For the full scope, current process and what PNPC includes, see the dedicated EOU Scheme Benefits service page.
Is This Relevant to Your Business?
- You are establishing or operating a manufacturing unit whose primary market is export: the scheme is designed for units with predominantly export orientation and significant raw material / capital goods import requirements
- Your production involves high-value imported inputs with significant customs duty: the duty-free import of raw materials, components, and packing materials directly reduces the cost of goods and improves export price competitiveness
- You are setting up a new manufacturing facility and want to import capital goods (plant and machinery) duty-free: the EOU scheme permits duty-free import of all capital goods required for export production, providing a significant upfront investment cost advantage
- You produce goods for both export and domestic markets, with exports forming the larger share: Para 6.07 of the FTP allows limited DTA sales of finished goods, by-products, rejects and scrap, on payment of GST and reversal of the customs duty exemption availed on the inputs, and only while the unit is NFE positive. Any limits that apply to you are written into your Letter of Permission
How the EOU route works, step by step
- Check that you qualify. The unit must manufacture goods or render services. Trading units are not covered. There is also a minimum investment criterion for plant and machinery, with exceptions for existing units and certain sectors, so confirm the current figure before you apply.
- Apply to the Development Commissioner. The application is made on the prescribed form (ANF 6A) with a project report. The Unit Approval Committee, or the Board of Approval in cases that need it, decides.
- Receive the Letter of Permission (LoP). The LoP first runs for a set-up period in which you build the plant and start production. Once production starts, it is valid for five years and the DC can extend it, generally by up to five years at a time.
- Sign the Legal Undertaking (LUT). The unit undertakes to meet the NFE requirement and the LoP conditions. New units need a permanent e-mail address with digital signature, otherwise further imports and DTA sales are not permitted.
- Get the premises bonded. A bond is executed with Customs, and goods can be imported duty-free only after this is in place.
- Import and procure within the approved list. Capital goods are imported on a self-certification basis and must be used for the approved activity, on an actual-user condition.
- Report and account. The unit files digitally signed quarterly and annual reports with the DC and Customs, and must be able to account for the full quantity of each category of goods imported or procured duty-free, whether it went out as exports, DTA sales, transfers to other units or is still in stock.
Mistakes that turn a benefit into a demand
- Entering the scheme without an NFE projection. If exports cannot outrun the value of duty-free imports, the benefit becomes a liability. Model five years before applying.
- Importing before bonding is complete. Goods received before the bond is in place are not in bond, and the duty-free claim can be challenged.
- Importing capital goods that are not on the approved list. Amend the LoP first.
- Inconsistent product descriptions and HS codes between the LoP, bills of entry and shipping bills. Customs reads these against each other.
- Thin stock records. The stores and production registers are the documents an audit begins with. Unexplained gaps become duty demands.
- Walking away without de-bonding. A unit exits only with the DC's approval, payment of the applicable duties and taxes, and a No Dues Certificate from Customs. Until then the bond stays open.
EOU compared with SEZ, Advance Authorisation and EPCG
An EOU can sit anywhere in India, is governed by Chapter 6 of the FTP and is run through the Development Commissioner. A Special Economic Zone unit must be inside a notified zone and is governed by the SEZ Act, 2005. The Union Budget 2026-27 announced a one-time concessional-duty window for domestic sales, but it is for eligible SEZ manufacturing units, not for EOUs. Advance Authorisation and EPCG work shipment by shipment or licence by licence, without turning the whole unit into a bonded one; see the guides on Advance Authorisation and EPCG. If you want the compliance calendar for an existing EOU, see the companion piece on EOU registration and compliance, and for the GST refund side, see SEZ and unutilised ITC refunds.
Before You Assume You Need This
- Your business is primarily domestic with occasional export orders: the mandatory NFE positive obligation and bonded unit compliance overhead is disproportionate if exports are incidental to a domestic-facing business model
- Your capital goods and raw materials are largely domestically sourced and not duty-bearing: if you are not importing significant duty-paid inputs, the benefit of bonded status is negligible relative to the compliance cost
- You operate as a trading, merchant export, or agency business without manufacturing facilities: the EOU scheme requires actual manufacturing or service delivery within the bonded unit; pure trading cannot access EOU benefits
Questions We're Actually Asked
What is an Export Oriented Unit (EOU) and how is it different from a normal manufacturing company?
An EOU is a manufacturing or service unit registered under the EOU scheme (FTP Chapter 6) that operates as a bonded unit under Customs. This means goods imported for production are duty-free from the point of entry; duty is payable only if they are cleared into the domestic market (DTA) without export. A normal DTA manufacturer pays customs duty at import and either claims drawback after export or applies for individual transaction-based licences like Advance Authorisation. The EOU model provides a blanket duty-free supply chain for an export-oriented manufacturing or service facility.
What duties and taxes does an EOU get exemption from on imports?
Para 6.01(d)(ii) of the FTP lets an EOU import goods without payment of the customs duty under the First Schedule and the additional duties under Section 3 of the Customs Tariff Act, and without IGST and compensation cess, as provided in the notification issued by the Department of Revenue. EOU imports are exempted under the Department of Revenue's EOU exemption notification; confirm the notification currently in force before you file bills of entry. Whether anti-dumping or safeguard duty is also exempt depends on the specific notification for that duty, so it should not be assumed. When an EOU buys from a supplier in the DTA, the supply carries the applicable GST and compensation cess, and the refund of that GST is available to the supplier under the GST rules and notifications (Para 6.01(d)(iii)).
What is the Net Foreign Exchange (NFE) obligation — and how is it calculated?
The NFE obligation is the central performance requirement of the EOU scheme. Para 6.04 of the FTP requires the unit to be a positive net foreign exchange earner, calculated cumulatively in blocks of five years starting from the commencement of production. Under Para 6.10 of the Handbook of Procedures, NFE = A minus B, and it must be greater than zero, where A is the FOB value of the unit's exports plus the other supplies that Para 6.08 of the FTP counts towards NFE, and B is the CIF value of imported inputs and imported capital goods plus specified foreign-exchange payments such as commission, royalty, fees, dividends and interest on external borrowings. Only the items of manufacture or service listed in the LoP count. The full method is in the Handbook of Procedures. A positive NFE means the unit has earned more foreign exchange (or its equivalent) than it has consumed — fulfilling the scheme's core export orientation test.
Where PNPC Fits In
EOU status is a powerful competitive advantage for export manufacturers — but only when the compliance framework is managed with the same precision as the production and export operations. Speak with a PNPC Chartered Accountant about your specific product, export volumes, and import requirements before applying. PNPC will tell you honestly whether the EOU scheme is the right structure for you — and what the full compliance commitment looks like from the Letter of Permission through renewal or exit.
PNPC Global has advised Chennai, Bangalore and Hyderabad businesses since 1986. Explore the full Registrations & Licences practice for related services, or go straight to the EOU Scheme Benefits page for specifics.
Specific rates, fees, thresholds and deadlines are set by the relevant authority and change over time — this article deliberately does not quote figures that could go stale. Confirm current numbers directly with PNPC or the official source before you act.