Special Economic Zones (SEZs) in India

Zero-rated supplies, customs reliefs, single-window clearances, and export-focused compliance for units inside notified zones.

Overview

A Special Economic Zone (SEZ) is a notified, demarcated area that operates under special economic laws and incentives to boost exports, attract FDI, and create employment.

SEZs offer GST and customs benefits, streamlined approvals, and plug‑and‑play infrastructure while requiring positive Net Foreign Exchange (NFE) over a 5‑year block and robust recordkeeping.

Objectives

  • Promote exports of goods and services
  • Attract foreign and domestic investment
  • Generate employment
  • Develop world‑class infrastructure

Documents Required

Basic Company Documents

  • Certificate of Incorporation / Partnership Deed / LLP Agreement
  • Memorandum & Articles of Association (for companies)
  • PAN of the entity
  • GST Registration (before operations)
  • IEC (Import Export Code)

Application & Approvals

  • Form F application (SEZ Rules, Rule 18(1))
  • Project Report / Business Plan (products/services, process, employment, NFE)
  • Board Resolution & Authorized Signatory
  • Covering letter to Development Commissioner
  • Filled checklist (DC format)

Infrastructure & Premises

  • Lease Deed/Agreement with SEZ Developer (min. 5 years)
  • Site/Factory Layout Plan (mark bonded area)
  • Power connection proof / NOC (as required)
  • Pollution Control Board NOC (if applicable)

Financial Documents

  • Audited financials (last 3 years) for existing entities
  • Net Worth Certificate (CA) for new entities / project cost > ₹5 crore
  • Source of finance / project cost sheet (Equity/Debt/Accruals)

Promoter / Director KYC

  • PAN, Aadhaar, Passport, DIN (as applicable)
  • Passport photographs of authorized signatory
  • Signature specimen

Legal & Compliance Undertakings

  • Legal Undertaking (LUT) with DC (post‑approval)
  • Application for bonding with Customs (Section 58, Customs Act)
  • Insurance copy for premises (fire/all‑risk, if required)

Additional Certifications

  • SEZ Act, 2005 (primary law)
  • SEZ Rules, 2006 (procedural framework)
  • FTP 2023 – Chapter 6 (SEZ/EOU/EHTP/STPI provisions)
  • Customs Act, GST Act, FEMA (tax and forex implications)

Exemptions

  • No IGST/customs duty on imports/procurements by SEZ units (subject to conditions)
  • Supplies to SEZ treated as zero‑rated under GST

Penalties

  • Shortfall in NFE may trigger action/regularization requirements
  • Non‑maintenance of mandated registers can lead to adverse audit findings
  • Incorrect DTA sales without duty payment may attract demand and penalties

Incentives

  • GST & Customs: Exemption from IGST and customs duty on imports/procurements
  • Deemed Exports: Domestic suppliers to SEZ get export benefits (e.g., Advance Authorisation, DFIA)
  • DTA Sale: Sale to Domestic Tariff Area permitted up to eligible limits with applicable duties
  • Single‑Window: Centralized approvals through DC/UAC
  • Infrastructure: Ready industrial sheds, data centers, plug‑and‑play facilities

Activities Covered

  • Multi‑product SEZs (e.g., Mundra, Sri City)
  • Sector‑specific SEZs (IT/ITES, Textiles, Pharma, Electronics)
  • Service‑based SEZs (IT/ITES/BPO units)
  • Biotech/Agri export SEZs
  • Free Trade Warehousing Zones (FTWZ)

Application Steps

  • Identify SEZ/location and finalize premises with developer
  • Prepare Form F, DPR with NFE calculation, and board resolution
  • Submit application pack to DC; attend UAC meeting if required
  • On LoA grant: execute LUT with DC and complete Customs bonding
  • Obtain GST LUT / set up zero‑rated export process
  • Begin operations; maintain registers; file APR annually

Roles

  • Developer: Builds and maintains core SEZ infrastructure
  • Unit: Export‑oriented manufacturer or service provider operating inside SEZ
  • Co‑developer: Assists developer in infra creation
  • Development Commissioner (DC): Nodal authority for approvals and compliance
  • Board of Approval (BoA): Final approval for SEZ projects

Guidelines

  • Maintain positive Net Foreign Exchange (NFE) over a 5‑year period
  • File Annual Performance Report (APR) with the DC‑SEZ
  • Export as zero‑rated supply under GST with LUT/refund mechanism
  • Maintain stock registers and bonded warehousing compliance
  • Keep separate registers for imported and indigenous inputs
  • Ensure DTA sale approvals and duty payments where applicable

Code of Conduct

  • Monthly GST compliance (GSTR‑1, GSTR‑3B) and LUT for zero‑rated supplies
  • Accurate bonded warehouse registers and auditable stock records
  • Maintain verifiable employment and export records for audit/inspection
  • Timely APR filing and adherence to unit‑specific LoA conditions

Renewal & Validity

Validity: Operations continue as per Letter of Approval (LoA) terms; keep LUT and Customs bonding active as required

Renewal Window: APR and routine GST/Customs filings are periodic; update agreements/NOCs before expiry

Frequently Asked Questions

Section 10AA benefits have been phased out for new units post 01‑04‑2020. Legacy units continue as per their timelines.

NFE = A – B, where A = FOB value of exports and B = CIF value of imported inputs/capital goods. It must remain positive over 5 years.

Supplies to SEZ are zero‑rated. The DTA supplier can supply under LUT or charge IGST and claim refund as per GST rules.