EMD Exemption for MSME Tenders: How to Claim & Save Lakhs Under GFR 2017

Last Updated: July 6, 2026 · Reading Time: 22 minutes · Written by TenderFlow Pro Research Team

What is EMD and Why Does It Matter?

EMD (Earnest Money Deposit), also called Bid Security, is a refundable amount that bidders must deposit with the government when submitting a tender bid. It serves as a guarantee that the bidder is serious and will honor the contract if awarded. Typically, EMD ranges from 1% to 3% of the estimated contract value — meaning a ₹10 crore tender could require an EMD of ₹10–30 lakh. For the comprehensive end-to-end framework, consult our full tender bidding process explained. (See also: 4% SC/ST MSME Tender Reservation Guide). (See also: 3% Women Entrepreneur Procurement Quota Guide). (See also: Consortium Bidding Strategy for Government Tenders).

For large enterprises with deep pockets, EMD is a minor formality. For MSMEs operating on thin margins, EMD can tie up critical working capital for 3–6 months — capital that could be used for raw materials, salaries, or growth.

This is where EMD exemption changes everything.

Under GFR 2017 rules (specifically Rule 170) and the Public Procurement Policy for MSEs (2012), Micro and Small Enterprises with valid Udyam registration are fully exempt from EMD on most central government tenders. This single benefit can save an active MSME bidder ₹5 lakh to ₹50 lakh annually in blocked working capital.

This guide covers everything you need to know about EMD exemption: the legal framework, exact eligibility, step-by-step claiming process, common mistakes, and how to use the saved capital strategically. For a comprehensive overview of EMD calculations, timelines, formats, and refund processes, check out our Earnest Money Deposit (EMD) Complete Guide. For a comprehensive overview of EMD calculations, timelines, formats, and refund processes, check out our Earnest Money Deposit (EMD) Complete Guide.

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Understanding EMD: The Basics

What is EMD Used For?

How EMD is Submitted

When EMD is Returned

• If bid is rejected: Returned within 30-60 days after opening
• If bid is not opened: Returned after bid opening
• If contract is awarded and signed: Adjusted against Performance Security or returned
• If winner withdraws or doesn't sign: Forfeited

When EMD is Forfeited

• Bidder withdraws bid during validity period
• Bidder modifies bid after opening
• Winner fails to sign contract within stipulated time
• Winner fails to submit Performance Security (PBG)
• Bidder is found to have submitted fraudulent documents

The Legal Framework: GFR 2017 Rule 170 & MSME Policy

GFR 2017 Rule 170: The Foundation

Rule 170 of the General Financial Rules, 2017 explicitly states:

"In order to facilitate participation of Micro and Small Enterprises in Government procurement, no tender fee and earnest money deposit shall be required to be deposited by them."

Key provisions:

1. EMD exemption for Micro and Small Enterprises
2. Tender fee exemption for Micro and Small Enterprises
3. Relaxation in prior experience by up to 50%
4. Relaxation in prior turnover by up to 50%
5. Bid Security Declaration in lieu of EMD

Public Procurement Policy for MSEs (2012)

Issued by the Ministry of MSME, this policy reinforces GFR 2017:

• 25% mandatory procurement from MSEs
• EMD and tender fee exemption
• Price preference up to 15% (for matching L1 rates as detailed in our MSME benefits guide)
• Sub-reservations for SC/ST (4%) and women (3%)

Udyam Registration (Effective July 2020)

The new Udyam system replaced Udyog Aadhaar:

• Lifetime validity (no renewal needed)
• Free registration at udyamregistration.gov.in
• Auto-linked to PAN and GST
• Required for claiming all MSME benefits

Which Tenders Are Covered?

Who Qualifies for EMD Exemption?

Eligibility Criteria (Must Meet ALL)

1. Udyam-registered Micro or Small Enterprise
   • Must have valid Udyam Registration Number
   • Registration must be active (not cancelled)
   • Classification must be "Micro" or "Small" — NOT "Medium"
2. Registered on the Tender Portal
   • GeM seller account (for GeM tenders)
   • CPPP registration (for CPPP tenders)
   • State portal registration (for state tenders)
3. Udyam Linked to Portal Profile
   • Udyam number must be linked in portal settings
   • Udyam certificate must be uploaded

Who Does NOT Qualify?

EMD Exemption: The "Borderline" MSME Trap

Many MSMEs lose EMD exemption because they don't understand the reclassification trigger:

Your Udyam classification is based on BOTH investment AND turnover. If EITHER crosses the threshold, you move up a category:

The Fix: Monitor your rolling 3-year average turnover monthly. If you are near the threshold, plan updates carefully. Udyam registration does NOT auto-update. You must manually update your profile when thresholds change. Failure to update can lead to misrepresentation charges.

MSME Classification Thresholds (2026)

Critical: If your turnover exceeds ₹50 crore OR investment exceeds ₹5 crore (manufacturing), you are reclassified as Medium Enterprise and lose EMD exemption.

Step-by-Step: How to Claim EMD Exemption

Step 1: Verify Your Udyam Status

1. Visit udyamregistration.gov.in
2. Click "Print/Verify Udyam Registration"
3. Enter your Udyam Registration Number
4. Verify your classification (Micro or Small)
5. Download updated certificate if needed

Time: 2 minutes | **Cost:** FREE

Step 2: Link Udyam to GeM (For GeM Tenders)

1. Log in to gem.gov.in seller dashboard
2. Go to "Profile" → "Organization Details"
3. Scroll to "MSME Details" section
4. Enter your Udyam Registration Number
5. Upload Udyam certificate (PDF, max 2MB)
6. Click "Save" — the system auto-verifies with Udyam portal
7. Check that "MSME Verified" badge appears on your profile

For a complete setup guide, see our GeM registration walkthrough.

Step 3: Prepare Bid Security Declaration (BSD)

The Bid Security Declaration is a self-declaration that replaces EMD for exempt MSMEs. It confirms you accept the EMD conditions without depositing money.

Standard BSD Format (check your tender for exact wording):

BID SECURITY DECLARATION

I/We, _________________________ (Name of Bidder), hereby declare that:

1. I/We am/are a Micro/Small Enterprise registered under Udyam Registration 
   Number _________________, dated _____________.

2. In terms of GFR 2017 Rule 170 and Public Procurement Policy for MSEs 
   (2012), I/We am/are exempt from submitting Earnest Money Deposit.

3. I/We understand that this exemption is conditional upon the truth of the 
   above statement. If found false, my/our bid shall be rejected and I/We 
   shall be liable for penal action including debarment.

4. I/We accept that the conditions of EMD forfeiture shall apply to me/us 
   as if EMD had been deposited.

Date: ___________    Signature: ___________
Place: ___________   Name: ___________
                     Designation: ___________
                     Seal: ___________

Important: Always use the EXACT format prescribed in the tender document. Do not use a generic template.

Step 4: Select EMD Exemption During Bid Submission

On GeM Portal:

1. Go to bid submission page
2. In the EMD section, select "EMD Exempt (MSE)" from dropdown
3. Upload Udyam certificate
4. Upload Bid Security Declaration (in prescribed format)
5. The system will auto-verify your MSE status
6. Proceed with remaining bid submission steps

On CPPP/eProcure:

1. Download tender documents and check EMD exemption clause
2. In the bid form, tick "MSE EMD Exemption" checkbox
3. Attach Udyam certificate and BSD
4. Submit as per portal instructions

Step 5: Verify Exemption Before Final Submission

Pre-submission checklist:

• [ ] Udyam registration is valid and active
• [ ] Udyam is linked to portal profile
• [ ] "MSE" or "MSME" category is selected in bid form
• [ ] Udyam certificate is uploaded (clear, readable, not expired)
• [ ] Bid Security Declaration is in EXACT prescribed format
• [ ] BSD is signed and stamped
• [ ] All other mandatory documents are complete

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