A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's domestic economic laws. The category 'SEZ' covers a broad range of more specific zone types, including, but not limited to:
- Free Trade Zones (FTZs)
- Export Processing Zones (EPZs)
- Free Zones (FZs)
- Industrial Estates (IEs)
- Free ports
- Urban enterprise zones
SEZs in India are areas that offer incentives to resident businesses. SEZs typically offer competitive infrastructure, duty free exports, tax incentives, and other measures designed to make it easier to conduct business. Accordingly, SEZs in India are a popular investment destination for many multinationals, particularly exporters.
While India’s SEZs are similar to those, found in other parts of Asia, business leaders should seek to understand how different SEZ work as many have unique features. Many business leaders conduct market entry studies that compare site, resources, tax incentives, and costs before making site visits.
Incentives for setting up a business in an Indian SEZ
Some incentives for setting up a sourcing or manufacturing platform within an Indian SEZ include:
- Duty free import and domestic procurement of goods for the development, operation, and maintenance of your company/SEZ unit
- 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for the next 5 years thereafter 2for Units will become effective from 01.04.2020)
- Income tax exemption on income derived from the business of development of the SEZ in a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act. (Sunset Clause for Developers has become effective from 01.04.2017)
- Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA
- Exemption from the Goods and Service Tax (GST) and levies imposed by state government (supplies to SEZs are zero rated under the IGST Act, 2017, meaning they are not taxed)
- Exemption from Minimum Alternate Tax (MAT)
- Single window clearances for all state and federal government approvals
- Exemption in electricity duty and tax on sale of electricity by certain states in India
- Presence of customs officer in the SEZs to facilitate and expedite the trade processes
- Some states also offer land to SEZ developers at concessional rates to promote industries in accordance with the state’s prevailing Industrial Policy
After making a shortlist of SEZs for further examination, investors may find that specific SEZs offer other advantages that complement their business plans in India.
Ultimately, however, the benefits of India’s SEZ policy have been substantial. It is one of the reasons why there is an increase in the number of foreign firms operating in India.
Exports, employment, and investment in SEZs
As per data from the Ministry of Commerce and Industry, from 2018-19 to 2020-21, 1096 units were registered in special economic zones in India. Exports by units in select SEZs are shown below.
Export Performance of Select SEZs in India
Exports (In INR)
| Number | Name and location of the SEZ | 2018-19 | 2019-20 | 2020-21 |
|---|---|---|---|---|
| 1 | MEPZ(Chennai, Tamil Nadu) | 1.866 billion | 16.188 billion | 43.964 billion |
| 2 | Cochin (Kerala) | 12.492 billion | 74.206 billion | 194.318 billion |
| 3 | Noida(Uttar Pradesh) | 13.587 billion | 37.636 billion | 65.505 billion |
| 4 | Kandla(Gujarat) | 514 million | 48.821 billion | 134.359 billion |
| 5 | Vishakhapatnam(Andhra Pradesh) | 2.728 billion | 34.388 billion | 99.928 billion |
| 6 | SEEPZ(Mumbai, Maharashtra) | 2.565 billion | 49.142 billion | 149.664 billion |
| 7 | Falta (West Bengal) | 207.2 million | 2.179 billion | 6.406 billion |
| Total : | 33.96 billion | 262.56 billion | 694.15 billion | |