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Export Oriented Units (EOU) scheme: Process and benefits

Export Oriented Unit scheme was introduced to increase foreign exchange earnings by exports. In this blog, learn about its benefits and how to set up an EOU.

Indian exporters often struggle with high import duties on raw materials and capital goods, which inflates production costs and makes it difficult to compete globally. These costs can erode profit margins, hinder innovation, and slow down expansion efforts. The Export Oriented Units (EOU) scheme was introduced to alleviate these challenges, promote exports, and increase foreign exchange earnings. In this blog post, we will discuss what the EOU scheme is, its objectives, benefits, and eligibility criteria.

What is the Export Oriented Units (EOU) scheme?

The Export Oriented Units (EOU) scheme, outlined in the Foreign Trade Policy (FTP), facilitates the establishment of Export Oriented Units that will export its entire production. Introduced in 1980, the scheme was designed to boost exports and increase foreign exchange earnings by expanding production capacity. Only those units that export their entire production of goods can be set up as an Export Oriented Unit.

The following are some sectors that can attain the status of EOU:

● Manufacturers of goods, including repairing, re-making, reconditioning and re-engineering.
● Service providers.
● Software development.
● Units engaged in agriculture, animal husbandry, biotechnology, floriculture, horticulture and other similar activities.¹

Objectives of the Export Oriented Units (EOU) scheme

Some of the objectives of the EOU scheme are:
● To accelerate export trade from India.
● To increase foreign exchange earnings.
● To stimulate direct foreign investment.
● To generate employment opportunities.²

Eligibility criteria to set up an Export Oriented Unit (EOU)

To be eligible for EOU status, production units must meet the following conditions:

• Units must undertake to export their entire production of goods or services, with limited sales allowed in the Domestic Tariff Area (DTA) as per the Foreign Trade Policy (FTP).
• Trading units are not eligible under this scheme.
• A minimum investment of Rs. 1 crore in plant and machinery is required. This requirement does not apply to units in software technology parks, electronics hardware technology parks, and biotechnology parks.
• Existing units in sectors like handicrafts, agriculture, floriculture, aquaculture, animal husbandry, IT, services, brass hardware, and handmade jewellery are exempt from the investment requirement.
• The board of approval may allow the establishment of EOUs with a lower investment threshold.³

Procedure to set up an Export Oriented Unit (EOU)

The following steps provide an overview of the process of setting up an EOU:

Step 1: Application submission

○ Complete ANF 6A in triplicate. Include a demand draft of Rs. 5000. Submit 3 copies of ANF 6A and the application fee, along with supporting documents. Some documents required are:
■ Certificate of Incorporation
■ Articles of Association (AOA)
■ Partnership Deed (if applicable)
■ Existing and proposed capital structure

Step 2: Application review and decision

○ Your application will be reviewed by the Unit Approval Committee (UAC) within 15 days of submission. Proposals for setting up EOUs requiring industrial license or for EOUs in the service sector will be reviewed by the Board of Approval within 45 days of submission.
○ If approved, the DC or Designated Officer will issue a Letter of Permission (LOP).⁴

Step 3: Receipt of EOU status

○ The LoP will authorize EOU status and serve as official documentation for all operations.
○ The Letter of Permission will initially be valid for 2 years to facilitate the plant construction and the installation of machinery. This can be extended for up to one year.
○ In 5 years, the EOU will have to achieve positive net foreign exchange earning cumulatively.⁵

Benefits of Export Oriented Units (EOU)

Some of the benefits of EOUs are:

● EOUs are allowed to procure raw material or capital goods duty-free – either through import or through domestic sources.
● EOUs are eligible for reimbursement of GST.
● They are eligible for refund or reimbursement of duty paid on fuels produced from domestic oil companies.
● All EOUs are liable to claim input tax credit on goods and services and claim refund too.
● EOUs enjoy fast-track clearance facilities.
● EOUs are exempted from industrial licensing for manufacturing of items reserved for SSI sector.⁶

What is the difference between EOU and SEZ?

Both Export Oriented Units and Special Economic Zones (SEZ) have been initiated to promote exports and boost the economic sector of the country. Below are a few differences between the two:

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2. Gold Card Scheme for exporters: Objectives, eligibility and benefits

3. How to register for the Market Access Initiative (MAI) scheme?

4. What is the NIRVIK scheme for exporters?

5. All you need to know about Interest Equalisation Scheme and its benefits

6. All you need to know about the Transport and Marketing Assistance Scheme (TMA Scheme)

7. RoSCTL scheme: Benefits, eligibility and application procedure

8. What is Duty Entitlement Passbook (DEPB) Scheme for exporters?

9. Advance Authorisation Scheme: How does it help exporters?

10. What is Export Promotion Capital Goods Scheme (EPCG)?

11. What is Duty Drawback in export: Meaning, types and process

12. Understanding the benefits of RoDTEP scheme: A guide for Indian exporters

13. What is Authorized Economic Operator (AEO) Programme: How to register and obtain AEO certificate?

Frequently Asked Questions

Who provides EOU status?

The EOU status is granted by the Board of Approval, which operates under the Ministry of Commerce and Industry, Government of India. This board reviews applications submitted by units seeking EOU status and issues the necessary Letters of Permission (LoP) for establishing an Export Oriented Unit.

What are 100% Export Oriented Units?

A 100% Export Oriented Unit is an industrial unit exports its entire production, with some exceptions (such as limited sales in the Domestic Tariff Area or DTA).

What is EPZ and EOU?

An Export Processing Zone (EPZ) is a designated area within a country where goods can be imported, manufactured, and re-exported without the intervention of customs authorities. In contrast, an Export Oriented Unit (EOU) is a specific type of manufacturing unit that is established to export its entire production, benefiting from duty-free imports of raw materials and capital goods.

Is trading allowed in EOUs?

No, trading is not allowed in an EOU.

Can second hand goods be imported by EOUs?

Yes, second hand goods are liable to be imported by EOUs. Export Oriented Units have the permission to import second hand capital goods without any age limit.

How can an EOU exit from the EOU Scheme?

An EOU may withdraw from the EOU Scheme by submitting an application to the Development Commissioner and meeting all requirements, including paying any necessary taxes and duties.⁸

Published on October 29, 2022.

Sources:

1. https://content.dgft.gov.in/Website/dgftprod/6341c956-d75d-425a-8213-7ae4f4c8930d/Chapter%206%20FTP%202023.pdf
2. https://content.dgft.gov.in/Website/dgftprod/6341c956-d75d-425a-8213-7ae4f4c8930d/Chapter%206%20FTP%202023.pdf
3. https://content.dgft.gov.in/Website/dgftprod/6341c956-d75d-425a-8213-7ae4f4c8930d/Chapter%206%20FTP%202023.pdf
4. https://www.nsez.gov.in/Resources/EOU%20FAQs.pdf
5. https://www.indiafilings.com/learn/export-oriented-units-scheme/
6. https://www.indiafilings.com/learn/export-oriented-units-scheme/
7. https://www.nsez.gov.in/Resources/EOU%20FAQs.pdf
8. https://www.indiafilings.com/learn/export-oriented-units-scheme/.

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