EMD in tender: Earnest Money Deposit, exemption and refund

Short answer: EMD (Earnest Money Deposit), also called bid security, is an amount you deposit with your tender bid as a guarantee that you will not withdraw or change it during the validity period, and that you will sign the contract if you win. For central government goods procurement, GFR 2017 Rule 170 says it should ordinarily be 2% to 5% of the estimated value. Micro and Small Enterprises and DPIIT-recognised startups are exempt, and buyers can ask for a signed Bid Security Declaration instead of money. Unsuccessful bidders should get it back no later than the 30th day after award.

EMD is usually the first line of the NIT a first-time bidder notices, because it is real money locked up before you know whether you will win. This guide explains what the rules actually say, what varies by buyer, and how to keep your EMD safe.

What does EMD mean in a tender?

Earnest Money Deposit is a deposit that shows the buyer you are serious. In Hindi-English you will hear "EMD kya hota hai" answered as "bayana rashi" (earnest money); "jamanat rashi" usually means the security deposit, which is different. The General Financial Rules 2017 use the term bid security and note that it is also known as earnest money.

Its purpose, in GFR Rule 170(i), is to protect the buyer if a bidder withdraws or alters its bid during the bid validity period. Without it, a bidder could quote low to win, then walk away, and the buyer would have to start again.

EMD is not a fee. The tender fee (document cost) is paid and kept; EMD is returned unless you break the conditions.

How much EMD do you have to pay?

Many tenders state a fixed rupee amount instead of a percentage. That amount is what counts. If the NIT and the tender document disagree, check for a corrigendum and raise a pre-bid query.

What is a Bid Security Declaration?

A Bid Security Declaration (BSD) is a signed undertaking you submit instead of EMD. GFR Rule 170(iii) allows ministries and departments to ask for it. By signing, you accept that if you withdraw or modify your bid during validity, or are awarded the contract and fail to sign it or submit performance security in time, you will be suspended from bidding with that buyer for the period the tender specifies.

During the pandemic, the Department of Expenditure's Office Memorandum of 12 November 2020 directed that central tenders carry only a Bid Security Declaration, not bid security, with exceptions approved at a higher level. That instruction applied to tenders issued up to 31 December 2021. Today buyers may ask for either; read the NIT. A BSD costs nothing upfront, but the suspension is real, so do not sign it casually.

Who is exempt from EMD?

Under GFR Rule 170(i), bid security is to be taken from all bidders except:

• Micro and Small Enterprises (MSEs) as defined in the MSE Procurement Policy of the Ministry of MSME. In practice this means a valid Udyam registration covering the goods or services being bought.
• Firms registered with the Central Purchase Organisation or the concerned ministry or department.
• Startups recognised by DPIIT.

Points that trip people up:

• Medium enterprises are not exempt under this rule.
• Traders are generally excluded from the MSE procurement policy benefits; tenders often say so explicitly.
• Works contracts: whether the MSE exemption applies to works has been argued in court and buyers differ. Read the tender's own clause.
• State and PSU tenders may have different or additional exemptions.
• Proof is required. Upload the certificate where the tender asks, and make sure the registered activity matches the tender scope.

Our MSME benefits guide covers the other benefits, such as purchase preference and tender-fee waivers.

In what form can EMD be paid?

GFR Rule 170(i), as amended, allows bid security as:

• Insurance Surety Bond (added by DoE OM of 2 February 2022)
• Account Payee Demand Draft
• Fixed Deposit Receipt
• Banker's Cheque
• Bank Guarantee, including e-Bank Guarantee (added by DoE OM of 5 August 2022), from a commercial bank
• Online payment in an acceptable form

Most e-tenders now take EMD online through the portal's payment gateway, or ask you to upload a scanned bank guarantee and send the original by a deadline. Follow the NIT's instructions exactly: the payee name, the bank guarantee format and the delivery date are frequent reasons for rejection.

Validity matters. Rule 170(i) says bid security should normally remain valid for 45 days beyond the final bid validity period. If the buyer extends bid validity, you will be asked to extend your bank guarantee too.

When is EMD forfeited?

The tender's conditions and your Bid Security Declaration set the exact triggers. Typically the buyer can forfeit EMD (or invoke the declaration) if you:

1. Withdraw or modify your bid after the deadline and within the validity period.
2. Win, but refuse or fail to sign the contract.
3. Win, but fail to submit the performance security within the stated time.
4. In some tenders, are found to have submitted false documents.

Forfeiture is why you should only bid when you can actually deliver at the price you quote. A Go/No-Go check before you pay EMD saves money.

When and how is EMD refunded?

GFR Rule 170(ii) sets the central government timeline:

1. Unsuccessful bidders: returned as early as possible after the final bid validity expires, and no later than the 30th day after the contract is awarded.
2. Two-packet or two-stage bidding: bidders rejected at the first stage (technical evaluation) should get their bid security back within 30 days of that result.
3. The successful bidder: under Rule 171(iii), EMD is refunded once the performance security is received. Some tenders instead adjust it against the performance security.

Online EMD is usually refunded to the account it came from. Physical bank guarantees are returned or released by letter. If your refund is late, write to the tender inviting authority with the tender reference, your payment details and the award date. Keep copies of everything.

EMD vs PBG vs security deposit: what is the difference?

States, PSUs and individual tenders may set different percentages. The eligibility criteria guide explains why you should confirm your bank will issue the PBG before you bid.

Hypothetical example (illustrative)

A Coimbatore pump manufacturer, a medium enterprise, is bidding on a central government goods tender with an estimated value of ₹40 lakh.

• EMD: the NIT asks for 2%, which is ₹80,000. Because the firm is medium-sized, the MSE exemption does not apply.
• Form: it chooses a bank guarantee. The bid validity is 90 days, so the guarantee must be valid for at least 90 + 45 = 135 days from the bid due date.
• Cost: its bank charges a commission and asks for a cash margin, so ₹80,000 of working capital is tied up for roughly four to five months.
• If it loses: the guarantee should be released no later than 30 days after the award.
• If it wins at ₹38 lakh: the contract asks for 5% performance security, which is ₹1,90,000, valid until 60 days after the warranty ends. The EMD guarantee is released once this is received.

A micro enterprise with Udyam registration bidding on the same tender would upload its certificate and pay no EMD. All figures are invented to show the arithmetic.

What are the common EMD mistakes?

• Paying EMD to the wrong account or in the wrong name.
• A bank guarantee in your bank's format instead of the tender's format.
• Guarantee validity that does not cover bid validity plus 45 days, or the tender's stated period.
• Claiming MSE exemption with a Udyam certificate that does not cover the tendered item, or as a trader.
• Forgetting to send the original instrument by the physical submission deadline.
• Not chasing the refund, so working capital stays blocked for months.

How Grovia Tender does this

Grovia Tender extracts the EMD amount, form, validity and exemption clause from every tender, whether it came from a feed or you uploaded it. It checks eligibility with evidence from your Company DNA and Document Vault, so an MSE or startup exemption is shown only when your certificate is in the vault and covers the tender scope. The risk register puts EMD, performance security, liquidated damages and payment terms side by side, and Win Potential helps you decide before you lock up money. Get bid-ready ranks missing proofs, such as a Udyam certificate, by how many tenders each one would unlock.

AI-drafted forms and declarations are traceable to your own documents. Grovia Tender never submits, signs or prices on its own: you approve and pay the EMD, sign, and submit on the portal. Plans: Free ₹0, Pro ₹3,999/month, Business ₹14,999/month, pay-per-bid from ₹1,999 (GST extra). See features, how it works and pricing. New to online bidding? Start with what an e-tender is.

Frequently asked questions

What is EMD in a tender? EMD (Earnest Money Deposit), also called bid security, is money or a guarantee you deposit with your bid to show you are serious. The buyer can forfeit it if you withdraw or change your bid during the validity period, or win and then fail to sign the contract or give performance security.

How much EMD is charged in government tenders? For central government procurement of goods, GFR 2017 Rule 170(i) says bid security should ordinarily range between 2% and 5% of the estimated value. Works, services and state or PSU tenders follow their own manuals and rules, so the exact amount is always stated in the NIT.

Are MSMEs exempt from EMD? Under GFR Rule 170(i), Micro and Small Enterprises as defined in the MSE Procurement Policy, firms registered with the Central Purchase Organisation or the concerned ministry, and DPIIT-recognised startups are exempt from bid security in central procurement. Medium enterprises are not covered, and each tender states what proof it accepts, usually a valid Udyam certificate.

What is a Bid Security Declaration? It is a signed undertaking given instead of EMD. Under GFR Rule 170(iii) you accept that if you withdraw or modify your bid during validity, or fail to sign the contract or furnish performance security, you will be suspended from bidding with that buyer for the period stated in the tender.

When is EMD refunded? Under GFR Rule 170(ii), unsuccessful bidders should get it back as early as possible after the final bid validity expires and no later than the 30th day after award; in two-stage bidding, those rejected technically should get it within 30 days of that result. The winner's EMD is returned once performance security is received (Rule 171(iii)).

Stop guessing what the EMD clause means. Create a free Grovia Tender account, upload a tender, and see your EMD, exemption and risk in plain English.