SEZ Unit Benefits in India

Special Economic Zones (SEZs) in India are dedicated areas that offer duty-free privileges and are treated as foreign territories for trade operations, duties, and tariffs. Goods sent to SEZs from the domestic tariff area are considered exports, while goods coming in are treated as imports. State governments play a significant role in setting up SEZs along with the private sector. Both foreign and domestic businesses can establish units within Indian SEZs. Applications for setting up a manufacturing, trading, or service unit in an SEZ must be submitted to the Development Commissioner of the SEZ. This article explores the numerous benefits available to businesses operating within SEZs.

Customs and Excise Benefits

SEZ units can import or procure all requirements for capital goods, raw materials, consumables, and more, duty-free from domestic sources without additional licenses or approvals.
Duty-free import and domestic procurement of goods facilitate the setup of SEZ units.
Goods imported or procured locally duty-free are usable within a 5-year approval period.
Products sold domestically are subject to applicable customs duty.
Rejects, waste, and scrap sold domestically also attract customs duty based on transaction value.

Income Tax Benefits

Eligibility for physical export benefits.
100% IT exemption under Section 10A for the first 5 years, followed by 50% for the next 2 years.
50% reinvestment allowance on profits reinvested into the business.
Option to carry forward business losses.

Foreign Direct Investment (FDI)

100% FDI is permissible under the automatic route in the manufacturing sector, with some exceptions such as arms, ammunition, and hazardous chemicals. For more details, see FDI guidelines.
There are no FDI caps on SSI reserved items.

Banking, Insurance & External Commercial Borrowings

Establishment of offshore banking units in SEZs is permissible.
Export proceeds can be brought in without time constraints.
Units can secure external commercial borrowings up to $500 million annually without maturity restrictions.
Offshore Banking Units (OBUs) receive 100% income tax exemption on profit for the first 3 years and 50% for the next 2 years.
Flexibility to keep 100% of export proceeds in an EEFC account and make overseas investments from it.
Commodity hedging and exemption from interest rate surcharges on import finance are permitted.
SEZ units can write off unrealized export bills.

Central Sales Tax & Service Tax

Products sold from domestic tariff areas to SEZs are exempt from sales tax.
SEZ units enjoy service tax exemptions.

Licenses & Approvals

SEZs can host non-polluting industries such as IT and service industries like golf courses and hotels while adhering to coastal regulation zone requirements.
Exemption from public hearings as per the Environment Impact Assessment notification.
SEZ units are exempt from port restrictions under the Drugs & Cosmetics Rules.

Companies Act Relatives

Higher managerial remuneration limit of Rs.2.4 crores per annum is allowed.
Approval for the opening of a Regional office of the Registrar of Companies in SEZs.
Directors are exempt from residency requirement in India for 12 months before appointment.

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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.