Business

Export Oriented Unit (EOU) in India: Tax Benefits, Eligibility, Setup & More

Content
share on
Contents
Share On

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 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.

Feature Export Oriented Unit (EOU) Export Processing Zone (EPZ) Special Economic Zone (SEZ)
What it is A status or scheme for units anywhere in India A physical industrial area with fenced premises A larger, upgraded version of EPZ with clear legal backing
Location Can be set up anywhere in India — own land, industrial area Must be inside a designated EPZ park Must be inside an officially notified SEZ area
Policy Framework Operates under India’s Foreign Trade Policy Older export policy framework Governed by SEZ Act, 2005
Facilities Individual unit sets up own infrastructure Common customs, bonded area, shared facilities Modern infrastructure, single-window clearances, zone-level governance
Who controls it Development Commissioner (under SEZ jurisdiction) Managed by zone authorities Managed by SEZ Development Commissioner with SEZ Board of Approval
Market Focus 100% exports (some DTA sales allowed) 100% exports Primarily exports, but limited domestic sales allowed under duty payment
Current Status Active scheme All EPZs now function as SEZs Expanded nationwide under SEZ Act

In short

EOU: Your business gets export perks anywhere in India.

EPZ/SEZ: You set up inside a designated export-focused park.

Tax & Financial Benefits for Export Oriented Units

  • Duty-Free Imports: Raw materials, capital goods, spares, packing, and consumables can be imported without customs duties.
  • Zero-Rated Supplies: Goods and services supplied to EOUs are GST zero-rated; input tax credits can be refunded.
  • Excise Exemption: No excise duty on goods procured from the Domestic Tariff Area if used for exports.
  • Duty Drawback on DTA Sales: Duty drawback is allowed when selling part of your output in India (up to 50% of export value).
  • 100% FDI Allowed: Full foreign direct investment is permitted through the automatic route.
  • Retain Forex Earnings: Keep export earnings in EEFC accounts to manage foreign currency without forced conversion.

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.

Your Plan Should Cover

  • What product or service you’ll export
  • Planned production or delivery capacity
  • Total investment in plant, machinery, or skilled manpower
  • Estimated jobs created
  • Year-wise export targets and how you’ll meet the Net Foreign Exchange (NFE) condition

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.

Faster & Secure International Payments for Exporters

Get paid by clients in India faster than traditional banks, and save on FX fees compared to PayPal or Payoneer.

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.

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 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.

Feature Export Oriented Unit (EOU) Export Processing Zone (EPZ) Special Economic Zone (SEZ)
What it is A status or scheme for units anywhere in India A physical industrial area with fenced premises A larger, upgraded version of EPZ with clear legal backing
Location Can be set up anywhere in India — own land, industrial area Must be inside a designated EPZ park Must be inside an officially notified SEZ area
Policy Framework Operates under India’s Foreign Trade Policy Older export policy framework Governed by SEZ Act, 2005
Facilities Individual unit sets up own infrastructure Common customs, bonded area, shared facilities Modern infrastructure, single-window clearances, zone-level governance
Who controls it Development Commissioner (under SEZ jurisdiction) Managed by zone authorities Managed by SEZ Development Commissioner with SEZ Board of Approval
Market Focus 100% exports (some DTA sales allowed) 100% exports Primarily exports, but limited domestic sales allowed under duty payment
Current Status Active scheme All EPZs now function as SEZs Expanded nationwide under SEZ Act

In short

EOU: Your business gets export perks anywhere in India.

EPZ/SEZ: You set up inside a designated export-focused park.

Tax & Financial Benefits for Export Oriented Units

  • Duty-Free Imports: Raw materials, capital goods, spares, packing, and consumables can be imported without customs duties.
  • Zero-Rated Supplies: Goods and services supplied to EOUs are GST zero-rated; input tax credits can be refunded.
  • Excise Exemption: No excise duty on goods procured from the Domestic Tariff Area if used for exports.
  • Duty Drawback on DTA Sales: Duty drawback is allowed when selling part of your output in India (up to 50% of export value).
  • 100% FDI Allowed: Full foreign direct investment is permitted through the automatic route.
  • Retain Forex Earnings: Keep export earnings in EEFC accounts to manage foreign currency without forced conversion.

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.

Your Plan Should Cover

  • What product or service you’ll export
  • Planned production or delivery capacity
  • Total investment in plant, machinery, or skilled manpower
  • Estimated jobs created
  • Year-wise export targets and how you’ll meet the Net Foreign Exchange (NFE) condition

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.

Faster & Secure International Payments for Exporters

Get paid by clients in India faster than traditional banks, and save on FX fees compared to PayPal or Payoneer.

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.

The views expressed in the blogs on this page are solely the opinions of the authors and do not constitute expert advice. While we strive to provide accurate and up-to-date information, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the website for any purpose. Any reliance you place on such information is therefore strictly at your own risk. We disclaim any liability for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this website.

Find out how we can help you today!

Speak to our foreign payment specialist
Whatsapp-color Created with Sketch.
Whatsapp:
+91 74117 02726
Email:
sales@karboncard.com
Address:
Ground Floor, Karbon Business, 1st Stage Rd, Binnamangala, Hoysala Nagar, Indiranagar, Bengaluru, Karnataka 560038

Find out how we can help you today!

Speak to our foreign payment specialist
Whatsapp-color Created with Sketch.
Whatsapp:
+91 74117 02726
Email:
sales@karboncard.com
Address:
Ground Floor, Karbon Business, 1st Stage Rd, Binnamangala, Hoysala Nagar, Indiranagar, Bengaluru, Karnataka 560038

Latest from our blogs

Latest from our blogs

View All