All about 100 % Export Oriented Units (EOU) Scheme – Setting up of an EOU

To compete in trade with other countries internationally, government of India devises various export promotion schemes. Export oriented units (EOU) and Special Economic Zones (SEZs) are among them, they have been provided duty free competitive environment and better infrastructure facilities for export production and for the needs of higher level of technology and industrial progress in India. Process of setting up of an EOU is simple


  1. Meaning and Objective
  2. Setting up an EOU
  3. Administrative control over EOU

Meaning and Objective

Export promotion schemes exist since 1980 in India. Following are the sector specific EOU schemes:

  • Software Technology Park (STP) scheme to export technology
  • Electronic Hardware Technology Park (EHTP) scheme to export electronic hardware
  • Bio-technology Park (BTP) Scheme for export of bio technology products

An EOU can be set for manufacturing, rendering service, repairing, reconditioning, re-making or re-engineering but trading activity is not allowed.

The schemes for Export Oriented Unit (EOU) are formulated by Ministry of Commerce and Industry. Its policies are given in Chapter 6 of Foreign Trade Policy, Chapter 6 of handbook of Procedure (Vol-1) and notices and circulars issued by Department of Commerce.

Apart from above, notifications/circulars are also issued by CBEC under custom Act 1962, Central Excise Act 1944, Reserve Bank of India (RBI), Central Board of Direct Taxes (CBDT) and Directorate General Foreign Trade (DGFT) time to time and also schemes laying down the procedures thereof.

Procedure to Set up EOU of various types
Procedure to Set up EOU of various types

An EOU can get 100% of FDI, claim accelerated depreciation and can do or get done job work from DTA


  • Boosting export
  • Earning foreign exchange
  • Attracting latest technology and foreign investment

Incentives/facilities available to EOU

  1. Duty/tax free goods, raw material and capital goods
  1. Duty free import or procurement from bonded warehouse/international exhibitions
  2. Procurement from Domestic Tariff Area (DTA) without payment of central excise duty
  3. Full reimbursement of CST on goods purchased against form C from DTA
  4. Duty free goods (except capital goods) can be utilised over a period of 3 years
  5. Supplies by DTA manufacturer are eligible for export benefits

2. Exports and supply to DTA

  1. EOU can supply up to 50% of F.O.B value of export to DTA at concessional rate of Central Excise Duty
  2. Duty free goods can be supplied to DTA against Advance Authorization/DFIA issued by DGFT
  3. Export proceeds to be realised within 12 months and 100% retention of foreign exchange in EEFC account is allowed
  4. Positive net foreign exchange (NEF) to be achieved over a period of 5 years and supplies to be made to DTA, other exporting units/bonded warehouses are counted for the purpose of fulfilment of positive NFE
  5. Import/Export of goods such as precious goods are permitted to import/export through personal carriage or foreign post office

3. Other Incentives

  1. Job work/sub-contracting for or from DTA are permitted subject to fulfilment of certain conditions
  2. FDI of 100 % is permitted as per the guidelines of Department of Industrial Policy and Promotion
  3. Software Units are allowed to use computer system for training purposes
  4. 100% depreciation is permissible on capital goods but at the time of de-bonding duty is to be paid on depreciated value of capital goods

Setting up an EOU

Other than manufacturing and service industries, EOUs can also be set up in the following sectors:

  • Agriculture
  • Animal Husbandry
  • Aquaculture
  • Floriculture
  • Horticulture
  • Pisciculture
  • Viticulture
  • Poultry
  • Sericulture
  • Gems/Jewellery Units for making plain/studded jewellery
  • Cutting/polishing of diamonds and precious metals

Minimum Investment required

Only projects with investment of Rs 1 crore or above in plant and machinery are allowed except in certain specified sectors such as Agriculture, EHTP/STP/BTP, Animal Husbandry, Aquaculture, Floriculture, Handicrafts, Information Technology, services, brass hardware, Gems/Jewellery Units and other sectors as specified by BOA

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Procedure to apply for setting up of EOU

  • Application to be filed with concerned Development commissioner of SEZ in triplicate form
  • Project report and background of promoters establishing their credential and other specific requirements and documents are to be submitted to Development Commissioner for approval
  • DD of Rs 5000/- drawn in favour of The Pay & Accounts Officer, Ministry of Commerce and Industry, Department of Commerce, payable at the Central Bank of India, Udyog Bhavan, New Delhi
  • EOU should have Import Export code otherwise it has to apply in the prescribed form to the Zone administration
  • After submitting application if everything is in order then Letter of Permission (LOP) is issued by the Zone Administration
  • A legal undertaking in the prescribed form abiding by the terms of LOP to be executed by the unit

Procedure of approval of setting of different types of EOU

EHTP/STP Application to be submitted to designated Department of Information Technology
BTP Application to be submitted to designated Department of Bio-technology
Coffee Subject to approval of coffee board under relevant act
High Grade of Iron Ore i.e. 64% or above Iron ore of Goa origin and Redi origin are canalized through MMTC and its export is subject to approval of Board
Polyester Yarn No JOB work with EOU/SEZ/DTA unit is permitted.

None of the unit making polyester yarn shall be permitted to export through a third party.

Sale of surplus power Consultation of state government including state electricity Board is required.

No duty shall be paid on sale of surplus power by SEZ/EOU unit.

Permission of Assistant Commissioner of Custom/ Central Excise is required for sale of surplus power in DTA.

Non-ITA-I Items Following Non-ITA-I items can be sold in DTA-

1)      Colour Display Tubes (CDT) for Monitors

2)      Deflection Component of Colour Monitor

Textiles Activities pertaining to reprocessing of garments, used clothing, secondary textile materials, clipping, rags, industrial wipers, shoddy wool, yarn, blanket, shawls etc are not allowed in EOU/SEZ.
Tea Minimum value added should be 50%
Segregation Activities Not covered in manufacturing activity, only allowed if unit was set up before 01.04.2002

Sale to DTA is not allowed

Gems and Jewellery Products Minimum value addition should be as per Para 4A.2.1 of Handbook of Procedures

Conversion of Existing DTA units to EOU units

  • It a one-time option
  • If there is an outstanding export commitment under the EPCG then it will be subsumed in the export performance (EP) of the unit
  • If unit has outstanding export commitment under Advance Licensing Scheme, it has to discharge that in the same manner as it will do before conversion into EOU
  • Duties of Customs and Central Excise already suffered shall not be refunded

The next part focusing on the Administrative control of an EOU to follow soon!!!