Units undertaking to export their entire production of goods and services (except permissible sales in the DTA), may be set up under the Export Oriented Unit (EOU) Scheme, Electronic Hardware Technology Park (EHTP) Scheme or Software Technology Park (STP) Scheme for manufacture of goods, including repair, re-making, reconditioning, re-engineering, and rendering of services. No trading units are however permitted.
An EOU / EHTP / STP unit may export all goods and services except items that are prohibited in ITC (HS). Export of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) shall be subject to fulfillment of the conditions indicated in the ITC (HS).
All imports (Capital Goods and Raw material) in an EOU are duty free: An EOU / EHTP / STP unit may import without payment of duty, all types of goods, including capital goods, as defined in the Policy, required by it for its activities or in connection therewith, provided they are not prohibited items of imports in the ITC (HS). The units are also permitted to import goods required for the approved activity, including capital goods, free of cost or on loan from clients.
Supplies to EOU etc. from DTA (Domestic Tariff Area) are considered deemed exports: This gives rise to certain interesting benefits to the suppliers to the EOUs etc. They can get the Advance Authorization for their imports for the purpose of supplies to EOUs. They can also get the drawbacks for their supplies. This benefit can also be claimed by the EOU after required documentation.
EOUs can also avail of Promotional Schemes like MEIS, SEIS also.
Conditions for EOU:
The entire production of EOU/EHTP/STP units is required to be exported: Units, other than Gems and Jewellery units in DTA may sell goods / services upto 50 % of FOB value of exports, subject to fulfillment of positive NFE and on payment of applicable duties.
Unless specifically prohibited, rejects may be sold in the Domestic Tariff Area (DTA) on payment of duties as applicable.
EOUs need to be a net positive foreign exchange earner calculated cumulatively for a period of five years from the commencement of production.
Only project having a minimum investment of Rs.1 Crore (not applicable for STP/BTP/EHTP/ Services sector units etc.) and above in building, plant and machinery are considered for establishment under EOU scheme. Minimum investment should take place on coming into production of the unit.
Applications for setting up of units under EOU scheme other than proposals for setting up of unit in the services sector (except software and IT enabled services or any other service activity as may be delegated by the BOA), is approved or rejected by the Units Approval Committee. In other cases, approval is granted by the Board of Approval (BOA) set up for this purpose.
Foreign Investments upto 100% are allowed, subject to sectoral norms.
Income Tax holiday till 2010 (recently extended by one year).