Project Imports: Concessional Duty on Capital Goods for New Manufacturing Plants

What Is the Project Imports Scheme?

India's Project Imports Scheme is a unique provision under Chapter 98 of the Customs Tariff Act, 1975, that simplifies the classification and assessment of goods imported for setting up new industrial projects. Instead of classifying each piece of equipment, machinery, and component under its individual tariff heading — each potentially attracting a different customs duty rate — the scheme consolidates all project-related imports under a single tariff heading: CTH 9801.

The rate is no longer 5%. The concessional 5% (and, for some project types, Nil or 2.5%) BCD on project imports was deliberately phased out. The Budget 2022-23 memorandum records that the entries for project imports in the mega exemption notification (S. Nos. 597 to 606 of notification No. 50/2017-Customs) were withdrawn: projects registered after 30 September 2022 attract 7.5% BCD, projects registered up to that date were grandfathered at the old 0%/2.5%/5% rates only until 30 September 2023, and "after 30th September 2023, all projects registered under project imports will attract 7.5% BCD rate". The tariff rate for heading 9801 was itself moved from 10% to 7.5% to match. So the current position is a single, uniform 7.5% BCD on everything imported under a registered project contract.

That still matters, but for a different reason than it used to. The saving now arises only on items whose own tariff classification would attract more than 7.5% — a great deal of plant and equipment under Chapters 84 and 85 sits at 7.5% itself, while ancillary items, structures, instruments and spares can sit at 10%, 15% or 20%. The larger and more reliable benefit is classification and assessment simplification: one heading, one rate and one assessment for an entire plant, instead of hundreds of item-wise classifications each open to dispute. Certain projects also keep genuine exemptions outside the 7.5% norm — nuclear power projects, for example (see below).

The scheme is governed by three legal instruments: the Chapter Notes to Tariff Heading 98.01, the Project Import Regulations, 1986 (PIR), and the customs notifications and circulars issued by the Central Board of Indirect Taxes and Customs (CBIC). Note that the long-standing mega exemption notification No. 50/2017-Customs has been superseded by notification No. 45/2025-Customs dated 24 October 2025, which is where the current project- and sector-specific entries live — always check the entry in the notification in force rather than an older 50/2017 serial number.

Eligible Projects and Sectors

The Project Imports Scheme covers five categories of projects, each with a designated sponsoring authority that must approve the import contracts:

1. Industrial Plants

New industrial plant projects for manufacturing, processing, or production activities. This is the broadest category and covers factories for automobiles, pharmaceuticals, textiles, chemicals, food processing, electronics, and all other manufacturing sectors. The sponsoring authority is the relevant administrative ministry — for example, Department for Promotion of Industry and Internal Trade (DPIIT) for general manufacturing, or the Department of Pharmaceuticals for pharma plants.

2. Power Projects

Thermal, hydro, solar, wind, nuclear, and other power generation projects. The Union Budget 2026-27 made a real change here: the exemption at S. No. 66 of Table II of notification No. 45/2025-Customs was modified, with effect from 2 February 2026, to cover goods required for setting up a specified nuclear power project irrespective of capacity (certified by an officer not below the rank of Joint Secretary in the Department of Atomic Energy), and its validity was extended from 30 September 2027 to 30 September 2035, with eligibility extended to all contracts registered with the concerned Custom Houses on or before that date. The sponsoring authority is the Ministry of Power or the Ministry of New and Renewable Energy (MNRE); for nuclear, the Department of Atomic Energy.

3. Mining Projects

Projects for the extraction and processing of minerals, ores, and other natural resources. This includes coal mining equipment, mineral processing plants, and beneficiation facilities. The sponsoring authority is the Ministry of Mines or the Ministry of Coal.

4. Irrigation Projects

Large-scale irrigation and water management infrastructure projects. The sponsoring authority is the Ministry of Jal Shakti (Water Resources).

5. Oil and Mineral Exploration Projects

Projects for the exploration of oil, natural gas, and other minerals. This covers drilling equipment, seismic survey machinery, and associated infrastructure. The sponsoring authority is the Ministry of Petroleum and Natural Gas or the Directorate General of Hydrocarbons.

Concessional Duty Rates: How the Numbers Work

Understanding the effective duty structure under the Project Imports Scheme requires comparing it against the standard duty applicable to capital goods imported outside the scheme.

Project Imports Duty Structure

Check the IGST rate for your specific goods; 18% is the common rate for machinery but not universal.

Note: IGST paid on imports is available as input tax credit under the GST regime and can be offset against the company's output GST liability, effectively making it cost-neutral for businesses with taxable output supplies.

Duty Comparison Illustration

Take INR 100 crore of imported capital equipment at CIF value, IGST at 18%, and compare the uniform 7.5% project-import rate against the same goods classified item-wise at 10% and at 15%:

On BCD alone the saving is INR 2.5 crore against a 10% item and INR 7.5 crore against a 15% item, per INR 100 crore of imports — so INR 12.5 crore to INR 37.5 crore on a INR 500 crore project, depending on the mix. Where the goods would themselves classify at 7.5%, there is no rate saving at all and the case for registration rests on assessment certainty. Note too that IGST is creditable against output GST for a business making taxable supplies, so the cash-flow cost is real but the IGST column is not a permanent cost — the BCD and SWS lines are.

Contract Registration Procedure

To avail the concessional duty under the Project Imports Scheme, the importer must register each import contract with the Custom House before clearance of goods. This is a multi-step process with strict documentation requirements.

Step 1: Obtain Sponsoring Authority Recommendation

The project owner must obtain a recommendatory letter from the relevant sponsoring authority (ministry or department) confirming that the project qualifies under the scheme. The letter must attest to the nature of the project, the list of goods to be imported, and the specifications and quantities.

Step 2: Prepare Documentation

The following documents are required for contract registration:

• Itemised list showing dimensions, specifications, quantity and value; where an import licence is required for the goods, the original licence duly attested by the licensing authority
• Recommendatory letter from the sponsoring authority
• Process flow charts and plant layouts
• Project report with technical specifications
• Foreign collaboration agreements (if applicable)
• Continuity bond with specified security (bank guarantee)
• Copy of the import contract with the foreign supplier
• IEC (Import Export Code) certificate — see our guide on IEC registration

Step 3: Apply to Custom House

Submit the application in writing to the Assistant/Deputy Commissioner of Customs, Project Import Group, at the Custom House through which the goods will be imported. The application should be filed before the goods arrive at the port.

Step 4: Contract Registration

After verification that the goods are eligible and all documents are in order, the Custom House registers the contract and assigns a Project Contract Registration Number. The importer must file a provisional duty bond with appropriate bank guarantee as security.

Step 5: Clearance of Goods

Each shipment of goods under the registered contract is cleared by referencing the Project Contract Registration Number. The customs officer verifies that the goods match the registered contract specifications before applying the concessional duty rate.

Step 6: Final Assessment

After all goods under the contract have been imported, the importer applies for final assessment. The provisional duty bond is cancelled after verification that all conditions have been satisfied and no duty shortfall exists.

Recent Budget Changes Affecting Capital-Goods Imports

Two budgets matter to anyone planning a plant import, and the changes are often reported under the wrong year.

Budget 2025-26: tariff-rate rationalisation and battery capital goods

The Finance Bill 2025 amended the First Schedule to the Customs Tariff Act to compress the rate structure — reducing the 25%, 30%, 35% and 40% tariff rates to 20%, and the 150%, 125% and 100% rates to 70%, alongside tariffication of some effective rates. This removed high-end tariff slabs; it did not abolish the 7.5% rate, which remains the rate at which project imports and much machinery are assessed. The same budget added 35 capital goods for the manufacture of lithium-ion batteries of EVs and 28 capital goods for the manufacture of lithium-ion batteries of mobile phones to the list of exempted capital goods.

Budget 2026-27: nuclear, aviation and critical minerals

• Nuclear power: the exemption for goods required to set up a specified nuclear power project now applies irrespective of plant capacity and runs to 30 September 2035, covering contracts registered with the Custom Houses on or before that date (effective 2 February 2026).
• Battery energy storage: the existing BCD exemption on capital goods for manufacturing lithium-ion cells for EV batteries was extended to cells for stationary Battery Energy Storage Systems (effective 2 February 2026).
• Aviation: new entries exempt components and parts, including engines, of aircraft imported for the manufacture of aircraft and parts, and raw materials for the manufacture of aircraft parts for MRO where imported by defence PSUs — both subject to the IGCRS Rules, 2022 procedure.
• Critical minerals: the exemption of critical minerals from BCD and Social Welfare Surcharge under notification No. 36/2024-Customs is being simplified by shifting the effective rates into the tariff itself, with that notification rescinded from 1 May 2026. The exemption is on the minerals, not on capital goods for processing them.

Where a sector-specific entry gives a Nil rate, it beats the flat 7.5% project-import rate — so check the sector entry in notification No. 45/2025-Customs before assuming project imports is the best route.

EPCG Scheme

The Export Promotion Capital Goods (EPCG) scheme — which allows duty-free import of capital goods against an export obligation — continues as an alternative to the Project Imports Scheme. Companies whose manufactured goods will be exported should evaluate EPCG alongside project imports. The key difference: EPCG requires an export obligation of 6 times the duty saved within 6 years, while project imports have no such export condition.

Who Should Use the Project Imports Scheme?

The scheme is most beneficial for:

• Foreign manufacturers setting up greenfield production facilities in India under the FDI framework — companies incorporating a wholly-owned subsidiary or joint venture as a private limited company
• Existing manufacturers undertaking substantial expansion — the scheme covers expansion projects, not just new setups
• Power and energy companies importing turbines, generators, and other heavy equipment for new plants
• Mining and exploration companies importing drilling rigs, processing equipment, and exploration machinery

The scheme is NOT suitable for:

• Import of individual pieces of equipment for replacement or maintenance
• Trading companies importing goods for resale
• Companies importing components for assembly without establishing a manufacturing project

Common Pitfalls and Compliance Risks

The Project Imports Scheme offers substantial savings but comes with strict compliance requirements. Foreign manufacturers should be aware of the following risks:

Late Registration

The Project Import Regulations, 1986 require the contract to be registered with the Custom House before the goods are cleared. Consignments cleared without a registered contract are assessed item-wise at each item's own tariff rate, and customs will not re-open a completed assessment to apply heading 9801 after the fact. In practice, file the registration application well before the vessel arrives — the Custom House has to verify the itemised list against the sponsoring authority's recommendation, which takes time.

Diversion of Goods

Goods imported under the scheme must be used exclusively for the registered project. Diversion to another project, sale, or transfer to a different entity without customs permission exposes the importer to recovery of the differential duty under section 28 of the Customs Act, 1962 with interest under section 28AA (notified at 15% per annum), enforcement of the continuity bond and bank guarantee, and penalty under section 112 or section 114A of the Customs Act — under section 114A the penalty can equal the duty determined.

Incomplete Installation

If the project is abandoned or goods remain uninstalled beyond the stipulated period, the customs authority may demand recovery of the concessional duty benefit. Installation certificates from the sponsoring authority are typically required to demonstrate compliance.

Bond and Security

The provisional duty bond must be backed by security in the form the Custom House requires, commonly a bank guarantee sized against the duty differential. For large projects this can tie up significant capital. The quantum of security is set by the Custom House rather than fixed by the Project Import Regulations, so it is worth establishing early what the assessing Commissionerate will accept and whether a compliance track record reduces it.

Transfer Pricing on Imported Equipment

When the foreign parent sells equipment to its Indian subsidiary under a project import contract, the transaction is subject to transfer pricing scrutiny. The customs value (CIF price) and the transfer pricing value must be consistent. Discrepancies can trigger both customs duty adjustments and income tax transfer pricing adjustments.

Comparison with Other Duty Concession Schemes

Foreign manufacturers should evaluate the Project Imports Scheme alongside other duty concession mechanisms:

For companies setting up manufacturing in India, our FDI advisory services can help evaluate the optimal duty structure across these schemes.

Step-by-Step: Project Imports for a Foreign Manufacturer

Here is a practical workflow for a foreign company incorporating an Indian subsidiary and importing capital goods under the Project Imports Scheme:

1. Incorporate the Indian entity as a private limited company via SPICe+, with FDI under the automatic route. File FC-GPR within 30 days of share allotment
2. Obtain IEC from DGFT — mandatory for importing capital goods
3. Prepare the project report with technical specifications, plant layout, and itemised equipment list
4. Apply to the sponsoring authority for a recommendatory letter — allow 4-8 weeks for processing
5. Register the import contract at the Custom House — submit before goods arrive at port
6. Execute import shipments under the registered contract, referencing the Project Contract Registration Number on each Bill of Entry
7. Complete installation and obtain installation certificates from the sponsoring authority
8. Apply for final assessment and cancellation of the provisional duty bond

Key Takeaways

• The Project Imports Scheme now assesses a whole plant at a flat 7.5% BCD under heading 9801 for new industrial, power, mining, irrigation and exploration projects. The old 0%/2.5%/5% concessional rates were phased out — grandfathered projects lost them after 30 September 2023 — so the benefit today is uniformity and assessment certainty plus a saving only against items that would classify above 7.5%
• Contract registration before import is mandatory — goods cleared without prior registration will attract full standard duty with no retrospective relief
• Five categories of eligible projects each have designated sponsoring authorities; the recommendatory letter must be obtained before contract registration
• Check the sector entries before defaulting to project imports — Budget 2025-26 compressed the high tariff slabs and exempted 35 EV-battery and 28 mobile-battery capital goods, and Budget 2026-27 extended the nuclear power project exemption to 30 September 2035 irrespective of capacity and added aircraft and battery-storage entries. A Nil sector entry in notification No. 45/2025-Customs beats the flat 7.5%
• Foreign manufacturers should compare Project Imports, EPCG, SEZ, and PLI schemes to determine the optimal duty structure based on their domestic vs export market mix