Insurance Surety Bond on GeM: The MSME Seller's Guide to EMD and ePBG
- Rajeev Chari
- 2 days ago
- 10 min read
TL;DR
GFR Rules 170 and 171, amended in February 2022, place insurance surety bonds on equal legal footing with bank guarantees for government procurement. The September 2024 DFS directive then made acceptance mandatory for all central government departments, which includes buyers on GeM.
GeM's Earnest Money Deposit is exempt for bids below ₹25 lakh. For bids between ₹25 lakh and ₹10 crore, EMD runs at 1 to 5% of contract value. Insurance surety bonds are accepted as bid security under GFR Rule 170 where the GeM category has been updated to reflect the amendment.
The Electronic Performance Bank Guarantee (ePBG) applies to GeM orders above ₹30 lakh at a standard rate of 5% of order value, with a 15-day submission window after the order is placed. Insurance surety bonds are accepted as an alternative to a bank guarantee for ePBG where the category format on GeM reflects GFR Rule 171.
Implementation is not yet uniform across all GeM categories. Before structuring your bid security around an insurance surety bond, check the specific bid document to confirm ISBs are listed as an accepted form for that order type.
Introduction
You receive a GeM bid notification. The estimated contract value is ₹60 lakh. The bid document requires EMD of 2% (₹1.2 lakh) to be submitted before the bid end date, and will require an ePBG of 5% if you win.
The question is straightforward: do you block ₹1.2 lakh in cash for EMD and ₹3 lakh in banking limits for ePBG, or is there a better option?
The answer, under the General Financial Rules 2022, is that insurance surety bonds are accepted as a valid alternative to bank guarantees for both obligations. The regulatory mandate is clear. What most MSME sellers cannot find is a plain-language guide to how it actually works on the GeM portal: which thresholds apply, what Form-1 is, what the ePBG submission process looks like when you use an insurance surety bond, and what to do if the portal does not show an ISB option for your specific category.
This article covers all of it.
How GeM Structures Security Obligations: EMD and ePBG
EMD: At the Bid Stage
The Earnest Money Deposit is submitted before the bid end date. It protects the buyer if a seller wins the bid but withdraws, refuses to sign the contract, or fails to submit performance security on time. EMD is released to unsuccessful bidders after evaluation and to the winning bidder once performance security is in place.
On GeM, EMD is submitted online only. There is no offline EMD mode on the portal.
ePBG: After the Order Is Placed
The Electronic Performance Bank Guarantee is a post-award obligation. It protects the buyer during contract execution against non-performance, delayed delivery, or breach of contract terms. ePBG is triggered for GeM orders above ₹30 lakh.
The standard ePBG submission path on GeM uses SFMS (Structured Financial Messaging System). A bank integrated with GeM's SFMS system transmits the guarantee digitally. GeM's portal receives and auto-verifies it, typically within 48 to 72 hours. The seller has 15 days from the order date to complete ePBG submission. Missing this window results in forfeiture of EMD and can result in blacklisting.
When an insurance surety bond is used instead of a bank-issued guarantee for ePBG, the submission follows a document upload path rather than SFMS transmission, as covered in Section 7.
GeM EMD Thresholds and MSME Exemptions
Contract Value | EMD Applicability |
Below ₹25 lakh | Exempt: no EMD required |
₹25 lakh to ₹10 crore | 1 to 5% of bid value (buyer-specified within this range) |
Above ₹10 crore | Buyer-specified: no fixed cap |
MSME EMD Exemption
Udyam-registered MSME sellers are exempt from EMD on GeM under the Public Procurement Policy for Micro and Small Enterprises. The exemption applies to manufacturers (for goods) and service providers (for services). Traders registered as MSMEs are excluded.
Startups, Public Sector Undertakings, and Original Equipment Manufacturers also qualify for EMD exemptions on GeM, subject to the specific bid conditions.
A critical point: EMD exemption does not extend to performance security. An MSME seller who is exempt from EMD will still be required to submit ePBG if the order value exceeds ₹30 lakh. The insurance surety bond option applies at this stage, and this is where the working capital benefit is most significant.
Can You Replace GeM EMD with an Insurance Surety Bond?
Yes. Under GFR Rule 170(i), as amended by the Department of Expenditure in February 2022, insurance surety bonds from IRDAI-licensed insurers are accepted as valid bid security at par with bank guarantees. This applies to GeM procurement where the category's bid document has been updated to reflect the amendment.
The quantum under Rule 170 is typically 2 to 3% of the estimated contract value, as specified in the bid document.
On GeM, the bid security ISB is submitted as a scanned document upload during bid submission. The bond must be issued on non-judicial stamp paper of the applicable value under the Stamp Act of the state where the contract is to be performed, and it must match the proforma specified in the bid document (covered in Section 6).
To confirm whether ISBs are accepted for EMD in a specific GeM bid, check the bid security section of the bid document. If the document lists "insurance surety bond" alongside bank guarantee and fixed deposit receipt as accepted forms, the category has been updated and the ISB is a valid option. To understand how to replace EMD with a bid bond more broadly, see axiTrust's dedicated guide.
What Is ePBG on GeM and Can You Submit an Insurance Surety Bond Instead?
ePBG stands for Electronic Performance Bank Guarantee. It is GeM's digital performance security mechanism for orders above ₹30 lakh. The standard rate is 5% of the total order value, though this can go up to 10% in specific categories. The submission window is 15 days from the date the order is placed.
Insurance surety bonds are accepted as an alternative to a bank guarantee for ePBG under GFR Rule 171(i). The September 2024 DFS directive converted this from a permissive provision into a mandatory obligation: a central government department buyer on GeM that refuses a valid insurance surety bond from an IRDAI-licensed insurer is not exercising discretion: they are acting outside the directive.
The capital difference matters here. For a ₹60 lakh GeM order, the 5% ePBG obligation is ₹3 lakh. Under a bank guarantee with standard cash margin requirements, this blocks ₹2.4 lakh to ₹3.15 lakh in working capital before a single delivery is made. An insurance surety bond replaces that cash block with a premium, with no cash margin required and no impact on the seller's non-fund-based banking limits.
For a detailed comparison of insurance surety bonds versus bank guarantees across procurement types, see axiTrust's full analysis.
The Form-1 Proforma: GeM's Insurance Surety Bond Template
Form-1 is the standard "Bank Guarantee Format / Insurance Surety Bond" proforma on GeM's fulfilment portal. It appears under the QAP (Quality Assurance Plan) section of a bid document.
Form-1 matters because the insurance surety bond must be issued to match Form-1's wording. A bond that deviates from the proforma can be rejected on technical grounds by the GeM buyer even if it is issued by a valid IRDAI-licensed insurer and is otherwise compliant. The bond's terms are verified against the proforma, not just against the regulatory rules.
Form-1 specifies the following:
The penal sum (the maximum amount the insurer will pay on a valid claim)
The beneficiary (the specific GeM buying organisation by name)
The validity period
Non-revocability language
The invocation mechanism (how the buyer triggers payment)
Before approaching an IRDAI-licensed insurer to issue an insurance surety bond for a GeM bid or order, download Form-1 from the specific bid document and share it with the insurer. The bond must be drafted to match Form-1 exactly, including the beneficiary name and the penal sum.
How to Submit an Insurance Surety Bond on GeM: Step by Step
For EMD / Bid Security:
Download Form-1 from the bid document's QAP section.
Confirm the required EMD percentage and the bid validity period.
Approach an IRDAI-licensed insurer with Form-1 and your bid details. The bond must be issued on non-judicial stamp paper at the applicable rate for your state.
Upload the scanned bond document in the bid security section during bid submission on GeM. Online mode only: no offline submission.
If claiming MSME EMD exemption instead, upload your Udyam registration certificate as the exemption document.
For ePBG / Performance Security:
Accept the GeM order from your seller dashboard.
Locate the ePBG section in your Orders tab.
If your insurer is SFMS-integrated with GeM, the bank transmits the guarantee digitally and GeM auto-verifies it within 48 to 72 hours. For insurance surety bonds specifically, confirm the submission path with your insurer at issuance: ISBs typically follow the document upload path rather than SFMS transmission.
Upload the scanned ISB document within the 15-day window from the order date.
Retain a copy of the bond and track the verification status on your GeM dashboard.
If the portal shows only a bank guarantee field with no ISB upload option, see the next section.
Current Implementation Status: What Is and Is Not Live on GeM
This is the section most articles on this topic skip. The honest position is this: the GFR mandate and the September 2024 DFS directive are unambiguous, but GeM's category-by-category portal rollout has not caught up uniformly.
Some GeM categories have updated their bid documents and portal flows to reflect ISB acceptance. Others still display only bank guarantee fields. The regulatory standing of the insurance surety bond does not change based on what the portal shows, but the practical submission path does.
Before structuring your bid security around an insurance surety bond, check two things:
First, does the bid document's security section list "insurance surety bond" alongside bank guarantee as an accepted form? If it does, the category has been updated and you are on firm ground. If the bid document only mentions bank guarantee, request written confirmation from the buyer before proceeding.
Second, if you have a valid insurance surety bond and the buyer's GeM interface does not provide an upload path, contact the buyer in writing and cite the DoE OM No. F.1/1/2022-PPD and the September 2024 DFS directive. A buyer who refuses a valid ISB from an IRDAI-licensed insurer has no legal basis to do so under either instrument. Putting the request in writing creates a record and typically resolves the issue without formal escalation.
For a detailed guide on how to handle rejection and what the surety bond clause in government tenders must say to be compliant, see axiTrust's GFR 2022 compliance guide.
What Your Insurance Surety Bond Must Say to Be Accepted on GeM
Requirement | What to Check |
Issuing insurer | IRDAI-licensed general insurer with active surety underwriting authorisation |
Proforma match | Bond wording matches Form-1 from the specific bid document |
Penal sum | Matches the required EMD percentage or ePBG percentage of contract value |
Beneficiary | Names the specific GeM buying organisation (not a generic government reference) |
Validity - EMD | Covers the full bid validity period, with an extension clause if bid validity is extended |
Validity - ePBG | Runs until 60 days after satisfactory contract completion including the Defect Liability Period |
Non-revocability | Explicitly stated on the face of the bond |
Stamp paper | Non-judicial stamp paper, state-specific rate, purchased in the name of the supplier or insurer |
Verification | QR code or NeSL digital verification available: removes the "we cannot verify this" objection |
An insurance surety bond that fails any of these checks can be rejected on technical grounds regardless of the regulatory mandate. Confirming each point before the bond is issued is faster than resolving a rejection under bid timelines.
For a full explanation of what insurance surety bonds from IRDAI-licensed insurers must include under the IRDAI Surety Insurance Contracts Guidelines 2022, see axiTrust's guidelines guide. For a checklist of which insurers currently hold surety underwriting authorisation and how to find them, see the PSUs accepting insurance surety bonds in India guide.
Cost Comparison: Insurance Surety Bond vs Bank Guarantee on GeM
The table below uses a representative example: a GeM order of ₹60 lakh with a 5% ePBG requirement (₹3 lakh obligation).
Bank Guarantee | Insurance Surety Bond | |
Cash margin required | 80 to 105% of BG value | None |
Capital blocked | ₹2.4 lakh to ₹3.15 lakh before mobilisation | Zero |
Effect on banking limits | Reduces non-fund-based credit limit | Outside banking lines entirely |
Indicative annual cost | 8 to 10% of blocked capital (including opportunity cost) | 1 to 3% premium on bond value |
Stamp paper | Not applicable | State-specific; required; confirm rate with insurer |
Contract overrun | Bank must reissue or extend the BG | Extension clause in bond document: confirm language at issuance |
For MSME sellers running multiple GeM orders simultaneously, the compounding effect is significant. Each bank guarantee ties up non-fund-based limits and, in most cases, requires cash margin. An insurance surety bond for each order frees those limits and that capital for operations, not for compliance.
For a full breakdown of what insurance surety bonds cost across contract sizes and insurer profiles, see axiTrust's cost guide.
About axiTrust
axiTrust is India's dedicated insurance surety bond technology and consulting platform. axiTrust does not issue bonds directly. All underwriting decisions rest solely with IRDAI-licensed insurers. What axiTrust provides is the technology and consulting layer: helping MSME sellers understand their options, prepare documentation, and connect with the right licensed insurer for insurance surety bonds across all categories recognised under IRDAI's Surety Insurance Contracts Guidelines 2022.
Talk to an axiTrust consultant to confirm whether your GeM bid category accepts insurance surety bonds and to get the right bond in place before your submission deadline.
Frequently Asked Questions
Are insurance surety bonds accepted on GeM?
Yes, under GFR Rules 170 and 171 (February 2022) and the September 2024 DFS directive. Check your specific bid document, as not all GeM categories have been updated yet.
What is the EMD threshold on GeM for insurance surety bonds?
GeM EMD is exempt below ₹25 lakh and runs at 1 to 5% between ₹25 lakh and ₹10 crore. Insurance surety bonds are accepted where the bid document lists them alongside bank guarantees.
Can I use an insurance surety bond for ePBG on GeM?
Yes, for orders above ₹30 lakh at 5% of order value. Submit within 15 days of the order date, with the bond matching Form-1 from the bid document and issued by an IRDAI-licensed insurer.
What is Form-1 on GeM?
Form-1 is the standard insurance surety bond proforma in the QAP section of a GeM bid document. Your bond must match its wording exactly: beneficiary name, penal sum, and validity period.
What happens if the GeM portal does not show an ISB upload option?
Write to the buyer citing DoE OM F.1/1/2022-PPD and the September 2024 DFS directive, and request a formal written reason for refusal. Most cases resolve at this stage without further escalation.
References
Department of Expenditure, Ministry of Finance. Amendment to General Financial Rules 2017, GFR Rules 170(i) and 171(i), to include insurance surety bonds as valid security instruments. DoE OM No. F.1/1/2022-PPD, February 2022: link
Department of Financial Services, Ministry of Finance. Directive on Mandatory Acceptance of Insurance Surety Bonds by All Central Government Departments. September 2024. Confirmed via Ministry of Jal Shakti implementation circular: link
Government e-Marketplace. Buyer Frequently Asked Questions, EMD and ePBG thresholds: link
Insurance Regulatory and Development Authority of India. IRDAI (Surety Insurance Contracts) Guidelines 2022. Effective April 1, 2022: link
GeM Insurance Surety Bond Proforma, Form-1 (Bank Guarantee Format / Insurance Surety Bond), October 2024: link
