Who Is Exempted from EMD in Government Tenders? Check the Full List

Earnest Money Deposit (EMD) is a security deposit that bidders must submit along with their bid in government tenders to ensure serious participation. But not everyone has to pay it. Certain entities are exempted from paying the EMD. Several exemptions exist to promote small businesses, startups, and specific industries. These tender exemptions are provided under various government policies and procurement rules.

If you are bidding for a contract and wondering what is EMD in tender and who is exempted from it, this guide will clarify everything.

What is EMD in a Tender?

EMD, or Earnest Money Deposit, is a refundable security deposit required from bidders when submitting a tender. It acts as a guarantee that the bidder is serious about executing the contract. If a bidder backs out or fails to meet the terms, the EMD is forfeited. If you win and follow through, you get the money back. It’s mainly there to keep unserious bidders out. But the interesting part is everyone doesn't have to pay EMD. Some groups get exemptions.

Why is EMD required?

• Prevents non-serious bidders from participating
• Ensures commitment from suppliers and contractors
• Protects the buyer from financial loss if the bidder defaults

How is EMD paid?

• Bank guarantee
• Fixed deposit receipts (FDR)
• Demand drafts (DD)
• Online payments through e-procurement portals

Key Features of EMD:

• Typically 1% to 5% of the estimated project cost.
• Amounts vary depending on the government tender value and department requirements.
• Refunded after the bid evaluation process, unless forfeited due to non-compliance.

Also Read: What Are the Different Types of Exemptions in Tenders?

Who Is Exempted from EMD in Government Tenders?

1. Micro, Small & Medium Enterprises (MSMEs)

As per the General Financial Rules (GFRs) 2017, MSMEs are exempted from submitting EMD in government procurements. Small businesses get an exemption because the government wants to encourage them. This exemption is intended to support the growth and development of these businesses by alleviating financial constraints.

MSMEs registered under the Udyam Registration (formerly Udyog Aadhaar) or with NSIC (National Small Industries Corporation) are exempted from paying EMD in most government tenders. 

Conditions for exemption:

• The tendered item must be covered under the MSE’s registration certificate.
• The MSE should provide valid registration documents at the time of bidding.

Documents Required for EMD Exemption:

• MSME Registration Certificate
• NSIC Certificate
• Udyam Registration Certificate

2. Startups 

To support innovation, the Department for Promotion of Industry and Internal Trade (DPIIT) exempts startups from EMD payments. If you have a startup and it’s recognized by this department, you might not need to pay EMD either. It mostly applies to startups offering unique or tech-based solutions. 

The specific exemptions may vary based on the discretion of the procuring authority and the terms of the tender document. So, not every startup gets an automatic exemption. It depends on what’s written in the tender. 

Startups that are recognized under the Startup India initiative and meet eligibility conditions can also apply for EMD waivers in certain government tenders.

3. Government-Owned Companies & PSUs

Government ministries, departments, government-owned companies and Public Sector Undertakings (PSUs) are generally exempt from submitting EMD in tenders issued by their own government bodies.

4. Companies Registered Under Specific Government Schemes

If your company is part of certain government initiatives, you might be in luck. But only if the project allows it. Entities registered under schemes such as Make in India Initiative, ZED (Zero Defect Zero Effect) Certification, District Industries Centre (DIC) and KVIC (Khadi and Village Industries Commission) may qualify for EMD exemptions in government tenders, depending on the nature of the project and policies at that time.

5. Entities Specifically Mentioned in Tender Documents

Some tenders have specific exemptions for cooperatives, defense suppliers, renewable energy companies, or social enterprises based on the nature of the work. If the tender itself says that a particular group is exempt, then they don’t need to pay. Sometimes, tenders issued under platforms like GeM (Government e-Marketplace) also have different rules for EMD exemptions.

One thing to note—sometimes they issue tenders for which traders don’t get an exemption. If you’re an MSE but you’re just reselling something instead of manufacturing it or providing a service, you still have to pay. Also, for some big international tenders, exemptions might be given based on trade agreements, but this varies case by case.

How to Claim EMD Exemption in a Government Tender?

If you think you qualify for an EMD exemption, you have to submit proof. Otherwise, you might not get the benefit. In worst cases, your bid might even be rejected. Submitting proof means uploading your MSME, NSIC, DPIIT, or other relevant certificate when registering on the e-procurement portal. You also have to mention the exemption in your bid submission, or else your bid might be rejected.