SEZ Unit Benefits in India

SEZ or Special Economic Zone (SEZ) is a specifically delineated duty-free enclave that is deemed to be foreign territory for the purposes of trade operations, duties and tariffs. Goods and services going into the SEZ area from domestic tariff area are treated as exports, while goods and services coming from the SEZ are treated as imports. State governments have a lead role in the setting up of SEZ in association with the private sector. Foreign or domestic businesses can set up units in Indian SEZs. To set up manufacturing, trading or service unit in an SEZ, the application must be made to the Development Commissioner of the SEZ. In this article, we look at the benefits enjoyed by units set up in SEZ.

Customs and Excise Benefits

SEZ units are allowed to import or procure from domestic sources, duty-free, all their requirements for capital goods, raw materials, consumables, spares, packing materials, office equipment, etc., for implementation of the business in the SEZ without any license or specific approval.
Duty-free import and domestic procurement of goods for setting up of SEZ unit.
Goods imported or procured locally duty-free could be utilised over the approval period of 5 years.
Domestic sale of finished products, by-products on payment of applicable customs duty.
Domestic sale of rejects and waste and scrap on payment of applicable customs duty on the transaction value.

Income Tax

Physical export benefit.
100% IT exemption (10A) for first 5 years and 50% for 2 years thereafter.
Reinvestment allowance to the extent of 50% of ploughed back profits.
Carry forward of losses.

Foreign Direct Investment (FDI)

100% FDI under the automatic route is allowed in the manufacturing sector in SEZ except for arms and ammunition, explosive, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes, cigars and manufactured tobacco substitutes.
No cap on foreign investments for SSI reserved items.

Banking, Insurance & External Commercial Borrowings

Setting up of off-shore banking units is allowed in SEZs.
Freedom to bring in export proceeds without any time limit.
External commercial borrowings by units up to $500 million a year allowed without any maturity restrictions.
OBUs allowed 100% income tax exemption on profit for 3 years and 50% for the next 2 years.
Flexibility to keep 100% of export proceeds in EEFC account. Freedom to make the overseas investment from it.
Commodity hedging permitted.
Exemption from interest rate surcharge on import finance.
SEZ units allowed to write off unrealised export bills.

Central Sales Tax & Service Tax

Exemption to sales made from domestic tariff area to SEZ unit.
Exemption from service tax to SEZ units.

Licenses & Approvals

SEZs are permitted to have non-polluting industries in IT and facilities like golf courses, desalination plants, hotels and non-polluting service industries in the coastal regulation zone area.
SEZ units are exempted from a public hearing under Environment Impact Assessment notification.
SEZ units enjoy exemption from port restriction under Drugs & Cosmetics Rules.

Companies Act

Enhanced limit of Rs.2.4 crores per annum allowed for managerial remuneration.
Agreement to the opening of Regional office of Registrar of Companies in SEZs.
Exemption from requirement of domicile in India for 12 months prior to appointment as Director.

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Frequently Asked Questions

Common questions about SEZ Unit Benefits in India.

An SEZ is a specifically delineated duty-free enclave that is deemed to be foreign territory for the purposes of trade operations, duties and tariffs. Goods and services going into the SEZ area from domestic tariff area are treated as exports, while goods and services coming from the SEZ are treated as imports.

Both foreign and domestic businesses can set up manufacturing, trading or service units in Indian SEZs. To set up a unit, the application must be made to the Development Commissioner of the SEZ.

SEZ units are allowed to import or procure from domestic sources, duty-free, all their requirements for capital goods, raw materials, consumables, spares, packing materials, office equipment, etc., for implementation of the business in the SEZ without any license or specific approval. They can also sell finished products, by-products, rejects, waste and scrap in the domestic market on payment of applicable customs duty.

SEZ units enjoy 100% income tax exemption for the first 5 years and 50% for the next 2 years thereafter. They also get reinvestment allowance to the extent of 50% of ploughed back profits and can carry forward losses.

100% FDI under the automatic route is allowed in the manufacturing sector in SEZs except for a few restricted industries. There is also no cap on foreign investments for small-scale industry reserved items.

SEZ units can set up off-shore banking units, bring in export proceeds without any time limit, and avail external commercial borrowings up to $500 million a year without any maturity restrictions. Off-shore banking units also get income tax exemption for the first 3 years and 50% for the next 2 years.

SEZ units are exempted from central sales tax on sales made from domestic tariff area to the SEZ unit and also from service tax.

SEZ units are permitted to have non-polluting industries in IT and facilities like golf courses, desalination plants, hotels, etc. They are also exempted from public hearing under Environment Impact Assessment notification and from port restriction under Drugs & Cosmetics Rules.

SEZ units enjoy an enhanced limit of Rs.2.4 crores per annum for managerial remuneration. They also get exemption from the requirement of domicile in India for 12 months prior to appointment as Director.

State governments have a lead role in setting up of SEZs in association with the private sector. They provide land, facilitate approvals and support the development of infrastructure like roads, power and water supply in the SEZ.