Special Economic Zones

1. International Centre for Cross
Cultural Research & Human
Resource Management
Submitted By: Samarth Gupta
Roll No: 18MBAIB14
Module Title: International Trade Procedure and Documentation
Module Code: PSMBAIBTC0205
Submitted to: Dr. Shafqat Ajaz

2. 1
INDEX
S.no Content Page
No.
1. Introduction 2
2. Special Economic Zones Act, 2005 and Special Economic Zones
Rules, 2006
3
3. Amendments in the SEZ Rules, 2006 4
4. Current status of approvals for setting up of Special Economic Zones 5
5. Employment, Investment and Exports in SEZs 10
6. Regulatory framework– Setting up of an SEZ and an SEZ Unit 11
7. TAX Incentives available to an SEZ / SEZ Unit 17
8. Some Success Stories in SEZs 22
9. Annexure A 24
10. Annexure B 26

3. 2
Special Economic Zones (Sezs)
INTRODUCTION
A Special Economic Zone (“SEZ”) is a specified, delineated and duty-free geographical
region that has different economic laws from those of the country in which it is situated.
In some countries, such a region is even treated as a deemed foreign territory. An SEZ is
a trade capacity development tool, with the goal to promote rapid economic growth by
using tax and business incentives to attract foreign investment and technology. Today,
there are approximately 3,000 SEZs operating in 120 countries, which account for over
US$ 600 billion in exports and about 50 million jobs. By offering privileged terms,
SEZs attract investment and foreign exchange, spur employment and boost the
development of improved technologies and infrastructure.
Most developing countries in the world have recognized the importance of facilitating
international trade for the sustained growth of the economy and increased contribution
to the GDP of the nation. As part of its continuing commitment to liberalization, the
Government of India (“GoI”) has also, since the last decade, adopted a multi-pronged
approach to promote foreign investment in India. The GoI has pushed ahead with
second-generation reforms and has made several policy changes to achieve this
objective.
As of April 27, 2006, there were 13 functional SEZs and about 61 SEZs, which have
been approved and are under the process of establishment in India
2
. The list of the
functional SEZs and SEZs approved but under establishment in India is enclosed in
Annexure A. The total value of the exports from some of the key SEZs in India during
the financial year 2003-04 was US$ 3.08 billion, which increased to US$ 4.07 billion in
2004-05. Recently, after the enactment of the Special Economic Zones Act, 2005 (“SEZ
Act”), which made several facilities and benefits available, several industrial houses
have shown keen interest in setting up SEZs and SEZ Units. In the last six months, over
100 approvals have been granted for setting up SEZs spread over 15 States and 2 Union
territories, taking the current tally to 117 SEZs.
The SEZ policy was first introduced in April 2000, as a part of the Export-Import
(“EXIM”) policy of India. The objective was to provide an internationally competitive
environment for exports that would in turn earn precious foreign exchange for India.
However, in its initial form the concept was not able to inspire sufficient confidence in
the investors. To provide a stable economic environment for the promotion of export-
import of goods in a quick, efficient and hassle-free manner, GoI enacted the SEZ Act,
which received the assent of the President of India on June 23, 2005. The SEZ Act and
the SEZ Rules, 2006 (“SEZ Rules”) were notified on February 10, 2006. The SEZ Act
is expected to give a big push to exports and consequently to the foreign direct
investment (“FDI”) inflows into India, and is considered to be one of the finest pieces

4. 3
of legislation that may well represent the future of the industrial development strategy in
India. The new law is aimed at encouraging public-private partnership to develop
world-class infrastructure and attract private investment (domestic and foreign),
boosting economic growth, exports and employment.
The present paper explores the Indian policy framework for an SEZ and details the
procedure to be followed in establishing an SEZ, and a Unit in an SEZ. It further
discusses the various incentives available to an SEZ and an SEZ Unit, and the recent
developments pertaining to SEZs in India.
Special Economic Zones (SEZs)
The Special Economic Zones Policy was announced in April 2000 with the objective of
making the Special Economic Zones an engine for economic growth, supported by
quality infrastructure and an attractive fiscal package both at the Central and State level
with a single window clearance. The experience in last 55 years with the Industrial areas
and Industrial clusters has been that large slums come up in the neighbourhood of these
areas. Besides, the additional population creates pressure on the Municipal System. The
SEZ concept recognizes the issues related to economic development and provides for
developing self-sustaining Industrial Townships so that the increased economic activity
does not create pressure on the existing infrastructure.
I. Special Economic Zones Act, 2005 and Special Economic Zones Rules, 2006
Asia’s first EPZ was set up in Kandla in 1965. Seven more zones were set up thereafter.
However, the zones were not able to emerge as effective instruments for export
promotion on account of the multiplicity of controls and clearances, the absence of
world-class infrastructure and an unstable fiscal regime. While correcting the
shortcomings of the EPZ model, some new features were incorporated in the Special
Economic Zones (SEZs) Policy announced in April 2000.
To instill confidence in investors and signal the Government’s commitment to a stable
SEZ policy regime and with a view to impart stability to the SEZ regime thereby
generating greater economic activity and employment through the establishment of
SEZs, a comprehensive Special Economic Zones Act, 2005, was passed by Parliament
in May, 2005 and received Presidential assent on the 23rd of June, 2005. The SEZ Act,
2005, supported by SEZ Rules, came into effect on 10th February, 2006, providing for
drastic simplification of procedures and for single window clearance on matters relating
to central as well as State governments. As a result of this Act and Rules coming into
force, it was envisaged that the SEZs would attract a large flow of foreign and domestic
investment in infrastructure and productive capacity leading to generation of additional
economic activity and creation of employment opportunities.

5. 4
The main objectives of the SEZ Act are:
 generation of additional economic activity
 promotion of exports of goods and services
 promotion of investment from domestic and foreign sources
 creation of employment opportunities
 development of infrastructure facilities
II. Amendments in the SEZ Rules, 2006
The following important amendments have been made to the SEZ Rules, 2006:
 Prescribing minimum built up area for Bio- technology & Gem & Jewellery
Sectors;
 Prescribing minimum processing area for Free Trade Warehousing Zone
(FTWZ);
 Inclusion of specific provisions regarding grant of in-principle approval and its
extension;
 Providing for a lease period of not less than five years as against the earlier
provision of lease period being co-terminus with the validity of Letter of
Approval;
 Stipulating the Upper limit of the area required for multi product SEZs at 5000
hectares, with the State Governments having the option to prescribe a lower limit;
 Revising the minimum processing area uniformly at 50% for multi- product SEZs
as well as sector specific SEZs;
 Housing facilities to be provided to the SEZ employees by the developer;
 Type of land to be mentioned in the application form of SEZ;
 Reimbursement of duty in lieu of drawback for supply of goods to SEZ
developers against Indian rupees;
 Term “vacant land” defined for the purpose of SEZs;
 Clubbing of contiguous existing notified Special Economic Zones
notwithstanding that the total area of resultant Special Economic Zones exceeds
5000 hectares
 A number of other amendments to delegate powers and to simplify the procedure;
 SEZ Authority Rules, 2009 have been made for the smooth functioning of zones
and SEZ Authority has been set up accordingly.
 Routing proposal for setting up of SEZ through DC, to facilitate developers and
for better administrative efficiency.
 Including all the existing legislation/rules for generation, transmission and
distribution of power.

6. 5
 Prescribing a time limit of 10 years for constructing the minimum built up area
prescribed under Rule 5.
 Adding a new provision that once SEZ is notified and becomes operational, the
validity of Letter of Approval will continue as long as the SEZ remains notified.
 Prescribing various forms and procedure for smooth functioning.
 Making it mandatory to all the developers and units to use the online system for
better monitoring as also better facilitation in respect of the users.
 Classifying Cities of the country
 Promoting IT/ITES SEZs in smaller cities of the country
 Allowing setting up of FTWZs without any minimum area requirement in the
existing SEZs.
 Paving way for import of prohibited items by a unit in a Special Economic Zone
or Developer of the Special Economic Zone from a place outside India to the
Special Economic Zone with prior approval of the Board of Approval.
 Amending Annexure-II of Special Economic Zone Rules, 2006 to substitute the
term “Apparel” mentioned is column (3) against Serial Number 3 of the
Annexure by the words “Textiles and Articles of Textiles”.
 Enabling Board of Approval to extend validity of LoP of unit beyond 4th year
 Making validity of LoA of a co-developer of SEZ co-terminus with that of the
developer.
III. Current status of approvals for setting up of Special Economic Zones
Seven Export Processing Zones set up by the Central Government at Kandla (Gujarat),
Santa Cruz (Maharashtra), Cochin (Kerala), Noida (U.P.), Chennai (Tamil Nadu), Falta
(West Bengal) and Visakhapatnam (Andhra Pradesh), were converted to SEZs upon
announcement of the SEZ Policy. Another EPZ set up in the private sector in Surat was
also converted to SEZ. In addition to these, 11 more SEZs were set up by the State
Governments/private sector during the period 2000-2005 in the States of West Bengal
(2), Gujarat (1), Madhya Pradesh (1), Uttar Pradesh (1), Rajasthan (2) and Tamil Nadu
(4). After the coming into force of the SEZ Act, 2005 on 10th February 2006, 580
formal approvals have been granted for setting up of Special Economic Zones, out of
which 374 SEZs have been notified and are in various stages of operation. A total of
130 SEZs are already exporting.
The fact that the approved SEZs are spread over 20 States and 3 Union Territories
indicates that these are not concentrated in any particular region. State-wise distribution
of SEZs as on 31.12.2010 is in Table 5.1. The total land area involved in the formally

7. 6
approved SEZs including notified SEZs is around 68,422 Ha. The total area for the
notified SEZs would not be more than 0.014% of the total land area of India.
Table: 5.1
State-wise Distribution of Approved Special Economic Zone
(As on 31.12.2010)
State Formal
Approvals
In-principle
approvals
Notified SEZ Operational
SEZ
Andhra
Pradesh
109 5 74 32
Chandigarh 2 0 2 1
Chattisgarh 2 2 0 0
Delhi 3 0 0 0
Dadra &
Nagar Haveli
4 0 2 0
Goa 7 0 3 0
Gujarat 46 13 29 13
Haryana 45 17 34 3
Himachal
Pradesh
0 3 0 0
Jharkhand 1 0 1 0
Karnataka 56 10 36 20
Kerala 28 0 17 7
Madhya
Pradesh
14 7 6 1
Maharashtra 105 38 63 16
Nagaland 2 0 1 0
Orissa 11 3 6 1
Pondicherry 1 1 0 0
Punjab 8 7 2 0
Rajasthan 8 11 8 3
Tamil Nadu 70 19 57 22
Uttar Pradesh 33 5 20 6
Uttarankhand 3 0 2 0

8. 7
West Bengal 22 14 11 5
Total 580 155 374 130
Source: Department of Commerce
The six major sectors of IT/ITES, Hardware etc., Textiles and Apparel (including
Wool), Pharma and Chemicals, Biotech, Engineering and Multi-products account for
bulk (82%) of the SEZ formal approvals granted so far. IT/ITES/Electronic
Hardware/Semiconductor is the single most important segment accounting for about -
61% of the total formal approvals followed by Biotech and Engineering SEZs. More
than half of the 580 formal approvals issued so far have reached the stage of notified
SEZs. This ratio is the highest in Pharma/Chemicals sector (90%) followed very closely
by engineering sector (70%).
Sector-wise details of formal approval, in-principle approvals and notified SEZs are
given in Table 5.2 and charts 5.1 and 5.2.
Table: 5.2
Sector-wise Distribution of Approved SEZs
(As on 31.12.2010)
Sectors Formal approvals In-principle
approvals
Notified SEZs
Agro 6 4 4
Airport based
multiproduct
3 2 0
Auto and related 3 5 1
Aviation/Aerospa
ce
2 2 2
Beach &
mineral/metals
2 0 2
Bio-tech 33 0 18
Building
product/material
1 2 1
Electronic
prod/ind
3 4 3
Engineering 22 10 16
Food Processing 5 2 4

9. 8
Footwear/Leather 7 2 5
FTWZ 11 10 6
Gems and
Jewellery
12 4 6
Granite
processing
Industries and
other
allied
machinery/manuf
acturing
1 0 1
Handicrafts 4 1 2
IT/ITES/Electroni
c
Hardware/Semico
nductor
353 11 233
Metal/Stain.
Steel/Alum/Found
ary
11 6 5
Metallurgical
Engineering
1 0 0
Multi-Product 23 55 15
Multi-
Services/Services
16 13 8
Non-Conventional
Energy
5 0 4
Petrochemicals &
petro.
4 0 2
Pharma/chemicals 20 4 20
Plastic processing 0 2 0
Port-based multi-
product
8 0 2
Power/alternate
energy/solar
3 2 1
Strategic
Manufacturing
0 1 0

10. 9
Textiles/Apparel/
Wool
19 13 12
Writing and
printing paper
mills
2 0 1
GRAND TOTAL 580 155 374
Source: Department of Commerce

11. 10
I V. Employment, Investment and Exports in SEZs:
The details of employment and investment generated in the Special Economic Zones are
given in Box 5.1 and Box 5.2.
Export Performance
The exports in the current year i.e 2010-11 from the SEZs have been to the tune of
Rs.2,23,132.31 crore (as on 31st December, 2010). Exports from the functioning
Special Economic Zones during the last six years are in Table 5.3.
Table: 5.3
Exports from the functioning SEZs
Year Value (Rs.
Crore)
Increase
(%)(Over
previous
year)
2005-2006 22, 840 25
2006-2007 34,615 52
2007-2008 66,638 93
2008-2009 99,689 50
2009-2010 2,20,711 121
2010-
2011(April
-Sept.
2010)*
2,23,132 47
Box 5.1
Direct Employment in Special
Economic Zones
(as on 31.12.10)
employment to over 6.44 lakh
persons;
generated by the SEZs in the short
span of time since the SEZ Act came
into force in February 2006, is of the
order of 5.09 lakh persons.
Box 5.2
Investment in Special Economic
Zones
The Special Economic Zones notified
under the SEZ Act, 2005 have
already made an investment of
Rs.1.95 lakh crore since the coming
into force of the SEZ Act in
February, 2006.

12. 11
REGULATORY FRAMEWORK – SETTING UP
OF AN SEZ AND AN SEZ UNIT
The Ministry of Commerce and Industry lays down the regulations that govern the
setting up and administering of the SEZs. The Central Government is involved in
notifying SEZs and in overseeing their functioning, while the State Governments play a
significant lead role in the development of SEZs in their respective States by stipulating
the conditions to be adhered to by an SEZ and granting the necessary approvals. The
policy framework for SEZs has been enacted in the SEZ Act and the supporting
procedures are laid down in SEZ Rules.
The provisions under the SEZ Act and the SEZ Rules, inter alia, cover the following
aspects:
(i) Constitution of authorities and bodies for regulating the SEZs and SEZ Units
(ii) Permissible services and manufacturing activities in SEZs
(iii) Criteria and procedure for setting up of SEZs and SEZ Units
(iv) Obligations on the part of SEZs and SEZ Units
(v) Dispute Resolution
(vi) Facilities and Incentives to the Developer of SEZs and to SEZ Units
(I) CONSTITUTION OF ADMINISTRATIVE AUTHORITIES AND BODIES
FOR REGULATING THE SEZs AND SEZ UNITS
The SEZ Act provides for the constitution of the following authorities and bodies to
regulate the SEZs and SEZ Units:
1. Board of Approval (“Board”)
2. Development Commissioner
3. Approval Committee
4. SEZ Authority
(II) PERMISSIBLE SERVICES AND MANUFACTURING ACTIVITIES IN AN
SEZ

13. 12
An SEZ could be jointly or severally developed by the Central or State Government or a
private party, (a) for manufacturing goods, (b) for rendering services, or (c) as a free
trade and warehousing zone.
“Manufacture” means to make, produce, fabricate, assemble, process or bring into
existence, by hand or by machine, a new product having a distinctive name, character or
use and shall include processes such as refrigeration, cutting, polishing, blending, repair,
remaking, re-engineering and includes agriculture, aquaculture, animal husbandry,
floriculture, horticulture, pisciculture, poultry, sericulture, viticulture and mining.
“Services” means tradable services which (a) are covered under the General Agreement
on Trade in Services, (b) may be prescribed by the Central Government for the purpose
of SEZ Act, and (c) earn foreign exchange. The “Services” as prescribed by the Central
Government include:
• trading, warehousing, research and development services
• computer software services and ITES, call centers, data processing, engineering and
design, insurance claim processing, legal databases, medical transcription, support
centers and webs site services
• off-shore banking services, professional services (excluding legal services and
accounting), rental /leasing services without operators
• other business services, courier services, audio-visual services, construction and
related services, distribution services (excluding retail), educational services,
environmental services, financial services, hospital services, tourism and travel
related services, recreational, cultural , entertainment services, transport services
transport auxiliary services
“Free Trade and Warehousing Zone” means an SEZ wherein mainly trading and
warehousing and other activities related thereto are carried on.
The types of SEZs along with their minimum area requirements prescribed under the
SEZ Rules have been enclosed in Annexure B.
(III) CRITERIA AND PROCEDURE FOR SETTING UP AN SEZ AND AN SEZ
UNIT
Procedure to set up an SEZ
Application
An SEZ can be set up by the Central or State Government, the public or the private
sector including a foreign company or jointly in the form of a consortium. A person who
wishes to set up an SEZ (“Developer”) should submit a proposal in the form of an

14. 13
application before the Board or directly to the State Government after identifying the
area. The State Government then forwards the application to the Board along with its
recommendations within 45 days, or the Board may grant approval subject to the
applicant obtaining the concurrence of the State Government. A State Government
intending to set up an SEZ may directly forward the application to the Board after
identification of the area. Further, the Central Government can directly notify the SEZ,
without any application being made to the Board or reference to the State Government.
The application submitted to the Board by the Developer should contain the following
details: name, address and status of the Developer (whether individual/private
company/State Government/NRIs, etc.), and should be accompanied by a project report
covering the following particulars
• Location of the proposed SEZ with details of existing infrastructure and infrastructure
proposed to be established
• Its area and distance from the nearest seaport / airport / rail / road etc
• Financial details, including proposed investment, mode of financing and viability of
the project
• Details of foreign equity and repatriation of dividends, etc., if any
• Whether the SEZ will allow only certain specific industries or will be a multi-product
SEZ
Criteria for approval of SEZ
Proposals for setting up SEZ would be governed by the following criteria:
• Generation of additional economic activity
• Promotion of export of goods and services
• Promotion of investments from domestic and foreign sources
• Creation of employment opportunities
• Development of infrastructural facilities
• Maintenance of sovereignty and integrity of India and security of the States
The Board may approve, reject or modify the proposal for the establishment of the SEZ.
The Board also has the power to cancel the approval, provided the applicant is given an
opportunity to be heard before cancellation.
After the Board of Approval has scrutinized the application, it forwards the application
to the Central Government, which reviews it and grants a Letter of Approval (“Letter”)
if the application is found satisfactory.
The Letter has a validity of 3 years within which time the applicant has to effectuate
the proposal and start operations. However, the Board may grant a further extension
for up to 2 years on a case-by-case basis. The applicant /Developer has to then submit

15. 14
the documentation of the land so acquired for the purpose of setting up the SEZ to the
Central Government, for the Central Government to declare it as an SEZ.
After the approval has been granted, the Developer is required to submit all details to
commence the authorized operations, and to apply for the exemptions, drawbacks and
concessions. The SEZ will be demarcated into the processing and non-processing areas.
The Developer can allot land in the processing area to individual Units. The Developer
is not permitted to sell the non-processing area in an SEZ; however the Developer may
allot such land for business and social purposes. Further, the Developer is required to
execute a bond-cum-legal undertaking, with regard to the proper utilization of the
goods.
The Developer/Co-Developer should hold a minimum of 26% equity in the entity (i.e.
special purpose vehicle or separate entity) that is proposing to create business,
residential or recreational facilities in the SEZ.
Further, the Developer has to sign an undertaking that it will be governed by the
following local laws:
• Area planning
• Sewerage disposal
• Pollution control
• Industrial and labour laws
The SEZ Authority constituted under the SEZ Act is duty-bound to undertake measures
for the development, operation and management of the SEZ for which it is constituted,
including the development of infrastructure, and promotion of exports from the SEZ,
and to review the functioning and performance, etc. of the SEZ.
Procedure to set up an SEZ Unit
Application
To set up an SEZ Unit, copies of project proposal are required to be submitted to the
Development Commissioner who will forward the proposal to the Approval Committee.
The Approval Committee shall consist of Development Commissioners, Officers from
State and Central Government and also a representative of the Developer as a Special
Invitee.
A consolidated application form is required to be submitted for the following approvals:
• Allotment of Land / Industrial Sheds in SEZ
• Registration-cum-Membership certificate
• Annual permission for sub-contracting
• Allotment of Import Exporter Code Number

16. 15
• Power connection
• Water connection
• Small Scale Industries registration
• Registration with the Central Insecticides Board
• Registration with Central Pollution Control Board
• Building approval
• Sales Tax registration
• Approval from the Inspectorate of Factories
• Pollution control clearance wherever required
• Any other approval as may be required from the State Government, or as prescribed or
sought by the State Government
If an industrial enterprise is operating in both the Domestic Tariff Area (“DTA”) and an
SEZ, then both the Units shall have different identities though they do not need to be
separate legal entities.
To set up an Offshore Banking Unit (“OBU”), approval from the Reserve Bank of India
(“RBI”) is required. Further, if the Unit is to be set up in an International Financial
Services Center (“IFSC”), approval from Central Government is also required.
However, only one IFSC is permitted per SEZ.
Criteria for approval of an SEZ Unit
The approval of a proposal for an SEZ Unit is based on the fulfillment of certain
conditions which inter-alia require that:
• the SEZ Unit achieves positive net foreign exchange (“NFE”) to be computed
cumulatively for a period of 5 years from commencement of production. NFE means
excess value of exports and deemed exports over the value of imports/expenses
• the availability of space and infrastructure support has been applied for and is
confirmed by the Developer
A single point clearance system has been provided to the Units in the SEZ under
State laws / rules. Proposals for setting up Units in SEZs other than those requiring an
industrial licence may be granted approval by the Development Commissioner within
15 days. Proposals for setting up Units in SEZs requiring an industrial licence may be
granted approval by the Development Commissioner after clearance of the proposal
by the Board and Department of Industrial Policy and Promotion within 45 days.
Once granted, an approval is valid for 5 years.

17. 16
The Approval Committee, however, has the power to cancel the approval granted to
the SEZ Unit. Any challenge to the order of the Approval Committee with respect to
the grant of approval to the SEZ Unit should be made before the Board of Approval
within 45 days of communication of such order. Further, the concerned Development
Commissioner shall give the possession of the space in the SEZ to the entrepreneur
only after the issue of the Letter.
Exit mechanism
The SEZ Unit may opt out of an SEZ with the approval of the Development
Commissioner. Such exit is subject to the payment of applicable duties and taxes on
the imported or indigenous capital goods, raw materials, components, consumables,
spares and finished goods in stock. If the SEZ Unit has not achieved positive NFE,
the exit shall be subject to penalty. The SEZ Unit shall continue to be treated as an
SEZ Unit till the date of the final exit.
(IV) OBLIGATIONS OF AN SEZ / SEZ UNIT
• SEZ Units shall be required to achieve positive NFE. For this purpose, a legal
undertaking is required to be executed by the Unit with the Development
Commissioner
• The Unit is required to provide periodic reports to the Development Commissioner
and Zone Customs
• The Unit is required to maintain proper accounts and furnish details regarding the
value of imports, exports, etc. to the Development Commissioner on a quarterly
basis
• The Unit is also required to execute a bond with the Zone Customs for its operations in
the SEZ
(V) DISPUTE RESOLUTION
The SEZ Act provides that designated Courts shall try any suit of civil nature arising
in the SEZ and from notified offences committed in an SEZ. Appeals against the
Orders of designated Courts shall be filed before the High Court within 60 days from
the date of communication of decision. Till such time as the designated Courts are set
up, any dispute of civil nature arising between two or more entrepreneurs or two of
more Developers or between an entrepreneur of a Unit and a Developer in the SEZ,
shall be referred to Arbitration under the provisions of Arbitration and Conciliation
Act, 1996.

18. 17
TAX INCENTIVES AVAILABLE TO AN SEZ / SEZ UNIT
Income-tax benefits
As per the Income-tax Act, 1961 (“ITA”), the following are the key tax benefits to be
provided to SEZs and SEZ Units:
Benefits to SEZ Developers
(a) 100 per cent of the profits of the Developer arising from the business of developing
an SEZ, notified after April 1, 2005 under the SEZ Act, shall be deducted from
taxable income
3
. This deduction can be claimed at the option of the assessee for any
10 consecutive years out of 15 years beginning from the year in which the SEZ has
been notified by the Central Government. If a Developer who sets up an SEZ after
April 1, 2005, transfers the operation and maintenance of the SEZ to another
Developer, the transferee is entitled to the above deduction of profit for the
remaining period
(b) With regard to a Developer who is entitled to claim an exemption under Section 80-
IA
4
of the ITA, the Developer can claim an exemption for the remainder unexpired
exemption period under Section 80-IA, and thereafter it can claim the 10 year tax
exemption available to such Developer under Section 80-IAB
(c) The Developers of SEZ are not required to pay Minimum Alternate Tax
5
(d) No dividend distribution tax shall be paid by a Developer engaged in developing,
operating and maintaining an SEZ
6
Benefits to SEZ Units
(a) The Units set up in an SEZ which have begun to manufacture / provide services
during the financial year beginning April 1, 2005 will get the following exemptions
7
:
• 100% exemption of profits and gains from business for the first 5 years
• 50% exemption on profits and gains from business for the next 5 years
• 50% exemption to the extent that such amounts are re-invested in the SEZ Special
Reserve Account

19. 18
If the SEZ Unit has already availed of benefits for 10 years under Section 10A of the
ITA, the above exemptions are not available. Further, when a Free Trade Zone
(“FTZ”) or an Export Processing Zone (“EPZ”) is converted into an SEZ, the Units,
which have already availed of the 10-year tax exemption in an FTZ or EPZ, cannot
avail of the Section 10AA exemptions.
(b) Losses falling under the heads “Profits and Gains from Business or Profession”
and “Income from Capital Gains” can be carried forward / set off as long as such
loss is related to the business of the SEZ Unit
8
(c) Capital Gains on transfer of assets in case of shifting of an industrial undertaking
from an urban area to an SEZ shall be exempt, provided that 1 year before, or 3 years
after the transfer (i) machinery / plant was purchased for the business of the
industrial undertaking in the SEZ, (ii) building or land was acquired or building was
constructed in the SEZ, (iii) the original asset was shifted and the establishment was
transferred to the SEZ and (iv) the assessee incurred such other expenses as are
notified by the Central Government
9
(e) Interest income received by a non-resident or a person who is not ordinarily
resident in India, on a deposit made in an OBU situated in an SEZ, shall be exempt
from total income
10
(f) No tax deduction shall be made by the OBU from interest paid
11
:
(i) on deposits made on or after April 1, 2005 by a non-resident or a person not
ordinarily resident in India; or
(ii) on borrowings on or after April 1, 2005 from a non-resident or a person not
ordinarily resident in India
(g) The gross total income of an assessee having an OBU or an assessee being a Unit of
an IFSC shall be deductible to the extent of 100% for 5 consecutive years from the
year of grant of permission under the Banking Regulation Act / SEBI / other relevant
law and 50% for the next 5 years12. It further defines the exempted “income”, which
is:
• Income from an OBU in an SEZ

20. 19
• Income from business referred to in the Banking Regulation Act, 1949, or any
other Unit which develops, develops and operates, or develops, operates and
maintains an SEZ
• Income from an approved unit of an IFSC
(f) Exemption from Securities Transaction Tax available to taxable securities
transaction entered into by a non-resident through the IFSC
Other Benefits
Customs and Excise
• Exemption from Customs Duty: SEZ Units may import or procure from the domestic
sources, duty free, all their requirements of capital goods, raw materials,
consumables, spares, packing materials, office equipment, DG sets etc. for
implementation of their projects in the SEZ without requiring any licence or specific
approval
• Goods imported/procured locally which are duty-free could or should be utilized
within the approval period of 5 years
• Domestic sales by SEZ Units will be exempt from Special Additional Duty
• Domestic sale of finished products, by-products is permitted on payment of applicable
Customs duty
• Domestic sale of rejects, waste and scrap is permitted on payment of applicable
customs duty on the transaction value
• Exemption from applicable excise duty on goods brought in from the DTA to an SEZ
FDI
• 100% FDI under the automatic route is allowed in the manufacturing sector in SEZ
Units, except for arms and ammunition, explosives, atomic substances, narcotics and
hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes,
cigars and manufactured tobacco substitutes
• Exemption from the applicability of Press Note 2 (2005)
13
.
Banking / Insurance / External Commercial Borrowings

21. 20
• Setting up OBUs has been allowed in SEZs. External Commercial Borrowings by SEZ
Units up to US$ 500 million a year is allowed without any maturity restrictions
• Freedom to bring in export proceeds without any time limit
• Flexibility to keep 100% of export proceeds in an EEFC account and freedom to make
overseas investments with it
• Commodity hedging permitted
• SEZ units allowed to 'write-off' unrealized export bills
Central Sales Tax
• Exemption from Central sales tax on inter-state sale or purchase of goods
Other Central Enactments
• Exemption from other Central enactments, which are specified in Schedule 1 of the
SEZ Act
State Taxes
• The respective State Governments may for the purpose of giving effect to the
provisions of the SEZ Act, notify policies for Developers and SEZ Units and take
suitable steps for the enactment of any law for granting exemption from state taxes,
levies and duties to a Developer or an entrepreneur
Service Tax
• Exemption from Service Tax to the Developer and the SEZ Units to carry on
authorized operations in the SEZ. Service tax exemption granted only to Units in the
DTA providing services to a Developer or to a Unit
Labour laws
• All labour laws as applicable within the country apply in an SEZ Stamp duty

22. 21
• No stamp duty is chargeable in respect of any instrument executed, by, or, on behalf
of, or, in favour of, the Developer, or Unit or in connection with the carrying out of
the purposes of the SEZ
Sub-Contracting
• SEZ Units may sub-contract part of their production or production process through
Units in the DTA or through other EOU / SEZ Units
• SEZ Units may also sub-contract work from the DTA exporters, and export from the
SEZ
• Units can be set up to provide manufacturing services to overseas entities subject to
certain conditions
Transaction incentives with DTA
• Supplies from a DTA to an SEZ to be treated as physical export. A DTA supplier
would be entitled to:
� Drawback / DEPB
� Exemption from Central Sales Tax
� Exemption from State Levies
� Income-tax benefit as applicable to physical export under Section 80 HHC of the
ITA

23. 22
Some Success Stories in SEZs
Details of some prominent new generation SEZs which have made significant
progress in terms of exports, employment and investment generation are given
below:
 Nokia Special Economic Zone in Tamil Nadu (Telecom equipments
SEZ):
 Physical Exports of Rs.10105.66 crore was effected in four years (2006-
07 to 2009-10)
 Direct employment provided to 14900 persons.
 Investment of Rs.2702.28 crore has already been made in this SEZ, out
of which FDI is Rs.833.51 crores.
 Projected investment of Rs.2930 crores and projected direct employment
of 20000 persons.
 Mahindra City SEZ, Tamil Nadu (Apparels and fashion accessories;
IT/Hardware; auto ancillary):
A cluster of three sector specific SEZs in Tamil Nadu, for Apparels and fashion
accessories; IT and Hardware; and Auto ancillary. Employment, investment
and exports together for these three SEZs are:
 Physical Exports worth Rs.2485.5 crore was effected in four years
(2006-07) to (2009-10).
 Direct employment provided to 16257 persons.
 Investment of Rs.1634.18 crore has already been made in this SEZ, out
of which FDI is Rs.191.27 crore.
 Projected investment of Rs.2404.17 crore and projected direct
employment of 57236 persons.
 Apache SEZ Development India Private Ltd, Andhra Pradesh
(Footwear SEZ) :
 Physical Exports worth Rs.144.32 crore was effected in four years
(2006-07) to (2009-10).
 Direct employment provided to 6390 persons, out of which 2225 are
women employees.
 Investment of Rs.532.02 crore has already been made in this SEZ, out of
which FDI is Rs.411.53 crore.
 Projected direct employment of 20000 persons.
 Wipro Limited, Andhra Pradesh (IT SEZ):
 Physical Exports worth 1249.28 crore was effected in three years (2007-
08 to 2009-10).
 Direct employment provided to 7569 persons out of which 2984 are
women employees.
 Investment of Rs.302.35 crore has already been invested in this SEZ.
 Projected investment of Rs.277 crore and projected direct employment of
9500 persons.

24. 23
 Mundra Port and Special Economic Zone, Gujarat (Multi product
SEZ):
 Physical Exports worth Rs.995.96 crore was effected in three years
(2007-08) to (2009-10).
 Direct employment provided to 2204 persons, out of which 40 are
women employees.
 Investment of Rs.20716.44 crore has already been made in this SEZ, out
of which FDI is ` 190.89 crore.
 Projected investment of Rs.50342.3 crore and projected direct
employment of 211426 persons.
 Reliance Jamnagar Infrastructure Ltd., Gujarat (Multi Product):
 Physical Exports worth Rs.72329.63 crore was effected in two year
(2008-09) to (2009-10).
 Direct employment provided to 947 persons, out of which 5 are women
employees.
 Investment of Rs.37363 crore has already been invested in this SEZ, out
of which FDI is Rs.70 crore.
 Projected investment of Rs.35050 crore.
 Suzlon Infrastructure Ltd. Karnataka (Hi-tech Engineering Products &
related services SEZ)
 Physical Exports worth Rs.375.95 crore was effected in two year (2008-
09 to 2009-10).
 Direct employment provided to 1244 persons.
 Investment of Rs.601.98 crore has already been invested in this SEZ.
 Projected investment of Rs.2444.32 crore and direct employment of
3100 persons.

25. 24
Annexure A
Functional SEZs in India
1. Kandla Special Economic Zone
2. SEEPZ Special Economic Zone
3. Cochin Special Economic Zone
4. Surat Special Economic Zone
5. Visakhapatnam Special Economic Zone
6. Noida Export Processing Zone
7. Madras Special Economic Zone
8. Falta Special Economic Zone
9. Indore Special Economic Zone
10. Jaipur Special Economic Zone
11. Jodhpur Special Economic Zone
12. Manikanchan, Salt Lake SEZ
13. Maha Mumbai Special Economic Zone
SEZs approved and under establishment
1. Moradabad (Handicrafts) (Ready for operation)
2. Bornada (Jodhpur) (Handicrafts) (Ready for operation)
3. Kopata, Maha Mumbai (Multi-product)
4. Positra (Gujarat) (Multi-product)
5. Nanguneri (Tamil Nadu) (Multi-product)
6. Hassan (Karnataka) (Multi-product)
7. Navi Mumbai (Multi-product)
8. Bhadohi (Uttar Pradesh) (Multi-product) Kanpur
9. (Uttar Pradesh) (Multi-product)
10.Greater Noida (U.P) (Multi-product)
11.Visakhapatanam (Andhra Pradesh) (Multi-product)
12.Kakinada (Andhra Pradesh) (Port based SEZ)
13.Paradeep (Orissa) (Multi-product)
14.Gopalpur (Orissa) (Multi-product)
15.Kulpi (West Bengal) (Multi-product)
16.Vallarpadam/ Puthvypeen (Kerala) (Port based SEZ)
17.Noida (UP) (Handicrafts)
18.Baikampady SEZ (Karnataka) (Multi-product)
19.Dahej SEZ (Gujarat) (Multi-product)
20.Ennore SEZ (Tamil Nadu) (Multi-product)
21.Mundra SEZ (Gujarat) (Multi-product)
22.Ranchi SEZ (Jharkhand) (Multi-product)
23.Calcutta Leather Complex (Kolkata) (Leather products)
24.Mahindra City, Chennai (Tamil Nadu) (auto ancillaries)
25.Village Vanj, Distt. Surat, Gujarat (Apparel)
26.Chandigarh (Electronics and IT enabled services)
27.Adityapur (Jharkahand) (Multi-product)

26. 25
28.Hazira, Distt. Surat, (Guj.) (Multi-product)
29.Noida, Gautam Budh Nagar, U.P. (Multi-product)
30.Noida (UP) (Multi-product)
31.Gurgaon (Haryana) (Multi-product)
32.Icchapor, Distt. Surat, Gujarat. (Gem & Jewellery)
33.Sedarapet-Karasur (Automobiles and auto parts)
34.Sedarapet-Karasur (Information Technology)
35.Kakkancherry near Calicut, Kerala (Food processing)
36.Kalamassery, Kerala (Electronics)
37.Sriperumbudur (Tamil Nadu) (Telecom equipment and services in
telecom)
38.Kandla (Free trade and Warehousing Zone)
39.Greater Noida (Free trade and Warehousing Zone)
40.Mangalore, (Karnataka) (IT)
41.Shastri Park, Delhi (IT)
42.Faridabad (Haryana) (IT)
43.Amritsar (Punjab) (IT)
44.Nagpur (Maharashtra) (Multi-product)
45.Hassan, Karnataka (Textiles) (Getting ready for operations)
46.Mohali (Punjab) (IT) (Getting ready for operations)
47.Ghaziabad (UP) (Multi-product)
48.Garhi Harsaru (Haryana) (Multi-product)
49.Ahmedabad (Apparel)
50.Jamnagar (Gujarat) (Petroleum & Petrochemicals)
51.Bangalore (Sarajpur) (IT/ITES)
52.Bangalore (Electronic City) (IT/ITES)
53.Chennai (IT/ITES)
54.Hyderabad (IT/ITES)
55.Bangalore (IT)
56.Indore, MP (IT)
57.Kzhakuttom, Trivandrum (Kerala) (IT, Animation and gaming)
58.Pune, Maharashtra (Pharma)
59.Trivandrum (Kerala (IT)
60.Pune (Maharashtra) (IT/ITES)
61.Noida (UP)

27. 26
Annexure B
Type of SEZ Minimum Area requirement
MULTIPRODUCT
1 Manufacture /
rendering services of
two or more goods/
services in a sector or
goods/services falling
in two or more sectors
1000 hectares
contiguous and vacant
area
2 Exclusively for
services
100 hectares
contiguous area
3 Set up in the specified
states – Assam,
Meghalaya, Nagaland,
Arunachal Pradesh,
Mizoram, Manipur,
Tripura, Himachal
Pradesh, Uttaranchal,
Sikkim, Jammu and
Kashmir, Goa, Union
Territory
200 hectares or more
• Requirement of contiguous area can be decided by the Board on a case-to case basis
• At least 25% shall be a processing area
SECTOR SPECIFIC
1 Specific
sector/port/airport
100 hectares
2 Exclusively for
electronics hardware,
software, ITES
10 hectares
3 Exclusively for bio-
tech, non-conventional
energy, gem and
jewellery sector
10 hectares
4 Set up in the specified
states – Assam,
Meghalaya, Nagaland,
Arunachal Pradesh,
Mizoram, Manipur,
Tripura, Himachal
50 hectares

28. 27
Pradesh, Uttaranchal,
Sikkim, Jammu and
Kashmir, Goa, Union
Territory and sectors
not covered under
categories 2 and 3
above
• At least 50% shall be a processing area
FREE TRADE AND WAREHOUSING
1 When not set up as a
part of a Multiproduct
SEZ
40 hectares
2 When set up as a part
of Sector Specific SEZ
No minimum area
requirement
3 When set up as part of
a Multiproduct SEZ
No minimum area
requirement, but
maximum area cannot
exceed 25% of the
processing area
1000 hectares = 3.86 square miles = 2500 acres