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Selling to overseas markets is one of the fastest ways for Indian businesses to grow revenue and stay resilient.
You earn in higher value currencies than the INR, tap bigger markets, and keep your business profitable. (Or that’s at least what most businesses expect before starting out.)
The moment you start shipping abroad, you see margins shrink. High upfront import duties on raw materials, machinery, or special parts lead to less profit.
Added to that there is endless paperwork, customs checks, and clearance delays for which your shipment gets stuck.
One stuck shipment can mean missed deadlines, late penalties, or worse — a lost buyer.
This is exactly where India’s Export Oriented Unit (EOU) Scheme was set up in the first place. The scheme gives you special status to import duty-free, avail tax breaks, and clear goods faster.
What Is an Export Oriented Unit (EOU)?
An Export Oriented Unit (EOU) is a business registered under India’s Foreign Trade Policy with one main goal: produce goods or deliver services for export.
The EOU Scheme was introduced in 1981 to make India’s exporters more competitive and bring in more foreign exchange. Under this scheme, approved units get significant tax and customs duty benefits to reduce costs and improve profit margins.
The biggest benefit is duty-free imports. If you register as an EOU, you can import raw materials, machinery, components, and consumables without paying customs duties. In return, you must commit to exporting your output, with only limited exceptions for selling in the domestic market under specific conditions.
Today, thousands of units in sectors like electronics, textiles, auto parts, chemicals, food processing, gems and jewellery, IT services, and R&D register as an EOU to lower costs and compete internationally.
How Is an EOU Different from an EPZ or SEZ?
If you are new to export laws in India, it’s easy to mix up Export oriented units, Export processing zones, and special economic zone.
Although the goal of all three is to make exports from India cost-effective and easier, they differ in how they operate and where you can set them up.
Tax & Financial Benefits for Export Oriented Units
Who Can Register as an Export Oriented Unit?
Not every business is meant to run as an Export Oriented Unit. The government designed the EOU scheme for companies that rely on exports as their core business.
Export Commitment
The Indian government expects EOUs to export most of what they produce.
While the rules technically allow you to sell up to 50% of your export value within India, there’s a catch. You’ll need to pay full customs duties and follow extra compliance when selling to the domestic market.
In short, all the tax benefits and duty exemptions only make sense if your main customer base is outside India. The scheme is designed for exporters first.
Minimum Investment Requirements
Most EOUs need to put in at least ₹1 crore towards plant and machinery. This rule exists for a reason: it stops units from doing the bare minimum and calling it “export work.”
For example, businesses importing ready-made goods, adding a label, repacking them cannot get EOU approval.
This kind of low-value activity doesn’t create jobs or build local manufacturing, so the scheme doesn’t support it.
That said, there are exceptions. Industries like handicrafts, agriculture, aquaculture, and floriculture don’t always need big machines. They rely more on skilled labour, seasonal work, or handling perishables. For these, the minimum investment rule is relaxed.
Who Uses the EOU Route Most
Most EOUs in India are manufacturing units that depend on imported raw materials, specialised parts, or machinery. Industries like electronics, auto parts, engineering goods, textiles, chemicals, and gems and jewellery rely on the EOU scheme to cut costs.
For them, paying full customs duties would push up production costs and make their exports too expensive to compete globally. Duty-free imports under the EOU scheme help keep prices competitive and margins sustainable.
Any business that exports its entire output and meets the rules can apply: manufacturers, processors, service providers, startups, or specialised MSMEs in sectors like handicrafts, agriculture, aquaculture, or floriculture.
Services Are Eligible Too
Services can register as EOUs too. Many IT companies, BPOs, design firms, biotech labs, and R&D centres operate under the service export scheme. What matters is that they get paid in foreign currency and their client base is mainly outside India.
The Net Foreign Exchange Condition
Every EOU has to follow one hard rule: your exports must earn more foreign currency than you spend on imports and local inputs. This is called the Net Foreign Exchange (NFE) condition.
It’s not measured month to month. You have five years to show that your exports bring in a net gain for the country. If you miss this target, you don’t just lose your EOU benefits.
Sometimes businesses have to pay back the customs duties and tax breaks you saved.
How to Set Up an Export Oriented Unit in India
Step 1: Prepare a Detailed Project Plan
Every EOU starts with a solid project plan. This isn’t just a formality; the Development Commissioner wants to see realistic numbers and a clear strategy for how your unit will generate foreign exchange.
A vague or inflated plan usually leads to delays or rejection. Back up your numbers with realistic market data wherever possible.
Step 2: Apply to the Development Commissioner
Next, submit your application to the Development Commissioner’s office for your region. They’ll review whether your proposal adds real value, meets the scheme guidelines, and aligns with India’s foreign trade policy.
Your application goes through a Unit Approval Committee (UAC) or, for larger projects, the Board of Approval (BoA). They check your plan against a standard checklist, including your export commitment, investment level, expected forex earnings, and any sector-specific rules.
Once they’re satisfied, they’ll issue a Letter of Permission (LoP). This is your official licence to operate as an EOU.
Step 3: Set Up Customs Bonding
An LoP alone isn’t enough. Your unit must also be customs bonded under Section 58 of the Customs Act. This is mandatory because the EOU scheme’s core benefit is duty-free imports and exports.
Bonding means your premises are physically supervised or audited by customs. They’ll track what you import, how you use it, and what you ship out to ensure no duty-free goods are leaked into the domestic market.
Step 4: Start Operations and Export
Once bonding and clearances are in place, you can start importing raw materials, machinery, or services duty-free. From here, your main focus is simple: stick to your approved project plan, meet your export targets, and maintain a positive NFE over the block period.
Keep accurate records, file returns on time, and work closely with your customs and Development Commissioner’s office to stay compliant.
FAQs
What’s the purpose of the Export Oriented Unit in India?
It helps Indian exporters cut input costs, earn foreign exchange for the country, and compete globally by giving duty and tax perks.
Can an EOU sell in India?
Yes, but only up to 50% of the FOB value of exports (in most cases). Duties and taxes apply for domestic sales.
How is an EOU different from an SEZ unit?
An EOU can be set up anywhere. An SEZ unit must be inside a notified SEZ area and follows the SEZ Act’s special framework.
Who approves EOU applications?
The Development Commissioner of the jurisdictional SEZ/EPZ oversees approvals.
Do EOUs have to meet export targets?
Yes — you must maintain positive Net Foreign Exchange (NFE) earnings over five years.
Can services be exported under an EOU?
Absolutely. IT, software development, consulting, design, and R&D services are all eligible — as long as clients are overseas and you earn in convertible foreign currency.
Is FDI allowed in EOUs?
Yes, 100% FDI is allowed in most sectors under the automatic route.
Written by
Swati Saraf
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