EMD in tender: meaning, amount, MSME exemption and refund

What is EMD in tender?

EMD stands for earnest money deposit. It is a sum the bidder places with the buyer along with its bid, as a promise that the offer is serious. Government rules call it bid security; most tender notices in India still say EMD, and both terms mean the same thing.

The buyer can forfeit the EMD if the bidder withdraws or alters its bid during the bid validity period, or if the bidder wins and then fails to sign the contract or furnish the performance security. If none of that happens, the EMD is returned.

The EMD clause usually sits in the notice inviting tender (NIT) and again in the instructions to bidders. It states the amount, the accepted forms of payment, the beneficiary, the validity and who is exempt. Read it in full; see tender documents explained for where each part of a tender pack usually sits.

How much is EMD? The GFR 2017 rule and EMD calculation

For central government procurement of goods, General Financial Rules (GFR) 2017 (opens in a new tab) Rule 170(i) says the amount of bid security should ordinarily range between 2 and 5 percent of the estimated value of the goods, and that the amount must be indicated in the bidding document. State governments, PSUs and works departments follow their own manuals, so their percentages and caps can differ.

In practice you do not calculate EMD yourself. The buyer calculates it from its own estimate and prints a fixed rupee figure in the NIT. Pay that figure exactly, even if it does not match a neat percentage of your quoted price.

• Accepted forms under GFR 2017 typically include a demand draft, a fixed deposit receipt, a bank guarantee (including an e-bank guarantee) from a commercial bank, or online payment, as the tender allows.
• The rule asks for bid security to remain valid for 45 days beyond the final bid validity period, so a bank guarantee must cover that full span.
• Many e-tenders take EMD online on the portal; others ask for the original bank guarantee or demand draft to reach the buyer by a stated date.

Bid security declaration: when the tender asks for no EMD

A bid security declaration is a signed undertaking given instead of money. The bidder accepts that if it withdraws or modifies its bid during validity, or fails to sign the contract or submit performance security after award, it will be suspended from bidding with that buyer for a period stated in the tender.

GFR 2017 allows a bid securing declaration in place of bid security, and a Department of Expenditure Office Memorandum of 12 November 2020 pushed central buyers to use the declaration in most tenders. Many central ministry and PSU tenders now say "Bid Security Declaration" where an EMD figure would have been. Some still ask for EMD, so the tender wording decides.

Do not treat a declaration as a formality. A suspension can shut you out of every tender from that buyer for the stated period, which can cost far more than a forfeited EMD.

EMD exemption for MSME: who qualifies and which registration

The Public Procurement Policy for Micro and Small Enterprises (MSEs) Order, 2012 (opens in a new tab) lets MSEs receive tender documents free of cost and exempts them from paying EMD in central government and CPSE tenders. The same Order sets an annual target for procurement from MSEs and a purchase preference for MSEs quoting within L1 plus 15 percent.

Which MSME registration gives EMD exemption? Since 1 July 2020 the main proof is an Udyam Registration certificate. Many tenders also accept NSIC registration under its single point registration scheme. The tender lists the certificates it accepts, so check that list before relying on either.

The exemption has limits that cause many rejections:

• Micro and small only. Medium enterprises hold Udyam registration but are not MSEs under the Order, so they normally pay EMD unless the tender says otherwise.
• Manufacturers and service providers, not traders. The Order covers goods produced and services rendered by MSEs. Traders, distributors and sole agents are typically excluded, even when they hold Udyam registration.
• The registered item must match the tendered item. Buyers compare the activities or codes on your certificate with what the tender buys.
• Goods and services, not always works. Many works tenders state that MSE exemptions do not apply; the tender defines the position.
• EMD only. The exemption does not extend to performance security or security deposit.
• The certificate must be valid on the bid due date and in the same legal name as the bidder.

MSME benefits for traders in tender: under the MSE Order, traders generally get no EMD exemption or purchase preference. A trader who wants to quote a manufacturer's product usually needs that manufacturer's authorization, which is covered in our guide to approved vendor lists and manufacturer authorization.

EMD exemption for startups

Startups recognised by DPIIT are exempt from EMD in central government procurement under GFR 2017 Rule 170(i), as the Startup India public procurement page (opens in a new tab) lists. Rule 173(i) separately allows relaxation of prior turnover and experience. Several states, including Odisha, Gujarat and Haryana, have their own startup provisions.

Recognition does not relax quality or technical specifications, and a buyer may state in a particular tender that relaxations do not apply. Upload the DPIIT recognition certificate wherever the tender asks for exemption proof.

Difference between EMD and security deposit, PBG and tender fee

These four payments are often confused because they all move money between bidder and buyer. They apply at different stages and have different rules.

EMD vs PBG in one line: EMD secures the bid, PBG secures the contract. On award, the winner usually submits the performance security and the EMD is then released or adjusted.

Additional performance security is a separate demand some works buyers make when a bid is far below the estimated cost, to cover the risk of an unrealistically low price. The Ministry of Road Transport and Highways issued a circular on additional performance security (opens in a new tab) in 2022, and some states use a sliding scale. The threshold and amount come from the buyer's rules and the tender, so check them before you price aggressively.

EMD refund process: when you get it back

GFR 2017 asks buyers to return the bid security of unsuccessful bidders at the earliest after the final bid validity expires, and no later than the 30th day after the contract is awarded. The successful bidder's EMD is returned once it has furnished the performance security.

1. Track each EMD in a register: tender number, amount, form, instrument number, bank, expiry and expected refund date.
2. For online EMD, check the portal status after the award. Many portals refund automatically to the account the payment came from.
3. For a demand draft or bank guarantee, write to the tender inviting officer after the award, quoting the tender number and instrument details, and ask for return or release.
4. For a bank guarantee, collect the original or a written release so your bank can cancel it and free your limit.
5. If the refund is overdue, follow up in writing and cite the refund timeline in the tender conditions.

Refunds for cancelled tenders, and for bids rejected at the technical stage, follow the tender conditions. Keep every acknowledgement; delays are common and the paper trail is what moves the request.

Common EMD errors that get bids rejected

Most EMD problems are found at bid opening, when nothing can be corrected. These are the errors to check for:

• Wrong amount, often from rounding or reading an old figure that a corrigendum changed.
• Wrong form, such as a demand draft where only online payment is allowed, or a bank guarantee from a bank the tender does not accept.
• Bank guarantee not in the tender's format, short on validity, or naming the wrong beneficiary.
• Original instrument arriving after the stated date, when the tender requires a physical copy.
• Exemption claimed with an expired certificate, a certificate in a different entity's name, or one that does not cover the tendered item.
• Exemption claimed by a trader or a medium enterprise where the tender excludes them.
• Bid security declaration left unsigned, or submitted on a format other than the tender's.

How AI tools help with EMD checks, and what people still decide

The EMD clause, its exemptions and any corrigendum can sit in three different files. TenderGenie Document Intelligence brings clauses and obligations out of the whole tender pack, with a reference to the source page, so a reviewer can read the exact exemption wording instead of a summary.

Risk & Compliance compares the tender's criteria with your organization's credentials and documents and shows which requested documents you already hold, such as an Udyam or NSIC certificate. In Response Builder, the team reviews an offer checklist and attaches organization documents before compiling the final PDF.

People still decide whether your registration really covers the tendered item, whether to claim an exemption the tender wording leaves unclear, which form of EMD to use and whether the bid is worth the money tied up. Those are part of the bid/no-bid decision, and they stay with your team.

Questions and answers