FAQs: Special Economic Zones (SEZ) in India

Who can establish Special Economic Zones (SEZs) in India?

An SEZ can be established jointly or individually by the central government, a state government or its agencies, or private sector, including a foreign company, for the purpose of

• manufacturing goods, or/and
• rendering services, or
• Free Trade and Warehousing Zone (FTWZ).

Is there any minimum area requirement to set up an SEZ?

The SEZ Rules specify the minimum land area that is required for setting up an SEZ.

Multi-product and single-product SEZs require a minimum of 500 hectares and 50 hectares of land respectively. However, no minimum area for IT SEZs, but only a minimum built up area of 100,000 square meters for the top-7 cities, 50,000 square meters for the next 15 cities and 25,000 square meters for the rest of the cities is required.

How much foreign investment is permitted for setting up manufacturing units in SEZs?

100 percent FDI under automatic route is permitted in manufacturing in SEZs as per guidelines of SEZ Act except for items under the reserved list (arms and ammunition, explosive, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes, cigars and manufactured tobacco substitutes).

What are the incentives available for SEZ units?

•  Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
• Sunset clause is applicable to SEZ.

According to this clause, 100% income tax exemption on export income is available for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50 percent for next 5 years and 50 percent of the ploughed back export profit for next 5 years. (Sunset clause is likely to end on 31.03.2020. However, talks are going on for five-year extension of this clause.)

• Single window clearance for Central and State level approvals
• Any supply of goods & services or both to SEZ are zero rated-supply. This means that these supplies attract zero tax rate under Goods and Services Tax (GST).