The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31 st December 1980. The purpose of the scheme was basically to boost exports by creating additional production capacity. It was introduced as a complementary scheme to the Free Trade Zones/ Export Processing Zone (EPZ) Scheme introduced in the sixties which had not attracted many units due to locational restrictions. The exporters showed willingness to set up units with long term commitment to exports under Customs bond operations provided they had the freedom to locate them in places of their choice and given most of the benefits as provided to units set up in the Zones.

The EOU scheme is, at present, governed by the provisions of Export and Import (EXIM) Policy, 1997-2002. Under this scheme, the units undertaking to export their entire production of goods are allowed to be set up. These units may be engaged in the manufacture, services, development of software, trading, repair, remaking, reconditioning, re-engineering including making of gold/silver/platinum jewellery and articles thereof, agriculture including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisiculture, viticulture, poultry, sericulture and granites. The EOUs can export all products except prohibited items of exports in ITC (HS).

Under the EOU scheme, the units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith. However, the goods prohibited for import are not permitted. In the case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granite quarrying, only specified categories of goods mentioned in the relevant notification have been permitted to be imported duty-free.

Benefits under EOU Scheme

• Units are exempted from payment of Income Tax upto the year 2010.
• All the imports to units are customs duty free.
• Exemption from Central Excise Duty for the procurement of Capital Goods and Raw Materials from domestic market.
• Units are entitled to sell the product in local market upto 50% of the products exported in value terms.
• 100% of foreign equity is permissible.
• Reimbursement of Cenral Sales Tax pad on domestic purchases.
• Full Freedom for sub-contracting.
• Exemption from the payment of Electricuty duty.
• EOU unit can be set up at any of over 300 places all over India
• The unit can import capital goods, raw materials, consumables, packing material, spares etc. without payment of customs duty. Similarly, these can be procured indigenously without payment of excise duty. Second hand capital goods can also be imported.
• They have to achieve positive NFE (Net Foreign Exchange Earnings).
• Minimum investment in plant and machinery and building is Rs 100 lakhs for EOU. This should be before commencement of commercial production.
• Fast Track Clearance Scheme (FTCS) for clearances of imported consignments for EOU.
• Generally, all final production should be exported, except rejects upto prescribed limit.
• Sale within India should be on payment of excise duty. The duty  which will be equal to normal customs duty which would be payable on such goods, if imported. However, in certain cases, excise duty payable will be only 50%/30% of normal customs duty payable on such goods if imported into India .
• Sub-contracting of production outside on job work basis is permissible after obtaining necessary permission on annual basis
• Job work for exports is permitted
• Samples can be sold / given free within prescribed limit
• Unutilized raw material can be disposed of on payment of applicable duties
• The unit can exit (de-bond) with permission of Development Commissioner, on payment of applicable duties.
• Central Sales Tax (CST) paid on purchases is refundable (but not local tax).
• Prescribed percentage of foreign exchange earnings can be retained in EEFC account in foreign exchange.
• 100% foreign equity is permissible, except in a few cases.
• Supplies made to EOU by Indian supplier are ‘deemed exports' and supplier is entitled to benefits of ‘deemed export'.
• Restrictions under Companies Act on managerial remuneration are not applicable.
• No restrictions on External Commercial Borrowings.