Special Economic Zones

Special Economic Zone in India

The Special Economic Zones Act, 2005, established a dedicated legal and regulatory framework in India to promote exports, attract foreign investment, and create globally competitive manufacturing and services hubs. SEZs are designated geographical areas treated as foreign territory for trade operations and duties, offering businesses a simplified operating environment supported by high-quality infrastructure, fiscal incentives, and regulatory facilitation.

As of March 2025, India has:
• 416 SEZs approved
• 368 SEZs formally notified
• 276 SEZs operational
• Over 6,279 approved SEZ units

These zones span a wide range of sectors, including manufacturing, IT and IT-enabled services, engineering, pharmaceuticals, biotechnology, electronics, and renewable energy, making SEZs a core component of India’s export-oriented growth strategy.

The SEZ policy is administered by the Ministry of Commerce and Industry, through the Department of Commerce, ensuring central oversight with decentralised execution through Development Commissioners.

Purpose and Strategic Relevance of SEZs

SEZs are designed to:

For foreign companies, SEZs provide a controlled entry environment that reduces initial compliance friction while enabling efficient cross-border trade.

Incentives and Benefits Available to SEZ Units

SEZ units enjoy a combination of fiscal, regulatory, and operational incentives, subject to compliance with SEZ laws and Net Foreign Exchange (NFE) obligations.

1. Duty-Free Import and Domestic Procurement

SEZ units are permitted to import goods and procure goods/services from the Domestic Tariff Area (DTA) without payment of customs duty, excise duty, or IGST, provided such procurement is for authorised operations.

What can be procured duty-free

Why this matters for foreign companies

For foreign manufacturers and service providers, this significantly:

Unlike refund-based regimes, SEZ exemptions are upfront, reducing cash-flow pressure in the initial years.

2. Customs and Excise Duty Exemptions for Authorised Operations

Exemptions are granted for authorised operations approved by the Board of Approval under the SEZ framework.

Business advantage

For global supply chains, SEZs function as tax-neutral manufacturing and processing zones.

3. GST Zero-Rating for SEZ Supplies

Under the IGST Act, 2017:

Suppliers can:

For foreign companies:

4. Minimum Alternate Tax (MAT) – Reduced Rate

SEZ units are subject to Minimum Alternate Tax (MAT), but:

While the original SEZ income tax holiday for units has been phased out:

6. Abolition of Dividend Distribution Tax (DDT)

Dividend Distribution Tax was abolished in February 2020.

Impact for foreign investors

7. Single-Window Clearances

SEZ units benefit from:

Approvals covered

Impact for foreign investors

8. State-Level Incentives (Electricity, Land, Local Taxes)

Depending on the state, SEZ units may receive:

Choosing the Right SEZ Location in India

Selecting the appropriate SEZ location is a strategic decision influenced by sector focus, talent availability, logistics, state incentives, and proximity to ports or airports.

Major SEZ Clusters in India

Delhi NCR

The Delhi National Capital Region hosts approximately 14 SEZs, primarily located in Gurugram and Noida, with a strong focus on IT/ITES, electronics, and services.

Mumbai Metropolitan Region

The Mumbai region has at least seven SEZs across Mumbai, Navi Mumbai, and Thane, benefiting from port connectivity, financial infrastructure, and skilled manpower.

Bengaluru

Bengaluru hosts around 18 SEZs, largely concentrated on the city’s outskirts, and is a major hub for technology, R&D, and global capability centres (GCCs).

At a state level:

List of Operational SEZs by State

Gujarat

Karnataka

Maharashtra

Tamil Nadu

Uttar Pradesh

Steps to Set Up a Unit in an SEZ

Identify the SEZ and Business Activity – Choose an approved Special Economic Zone in India suitable for the intended industry or service activity (e.g., manufacturing, IT/ITeS, logistics)
Obtain a Letter of Approval (LoA) – Submit an application in Form F to the Development Commissioner of the concerned SEZ, outlining project details, investment, and proposed exports.
Execution of Bond-Cum-Legal Undertaking (BLUT) – Once approved, the unit must execute a BLUT with the DC to adhere to SEZ rules and export obligations.
Infrastructure Setup and Commencement – Units can lease or construct facilities within the SEZ and import capital goods or materials duty-free.
Operational Approval – After inspection and verification of compliance, final operational approval is granted, and the unit can commence commercial operations.

Documentation Required

Application Form (Form F) with project details and business plan
Certificate of Incorporation / Partnership Deed
Memorandum & Articles of Association (for companies)
Copy of PAN and GST registration
Details of promoters, directors, and shareholding pattern
Import-Export Code (IEC)
Financial statements or projected investment and export plan
Lease deed or allotment letter for SEZ space
Power and environmental clearances (if applicable)

Key Takeaway for Foreign Companies

SEZs offer foreign companies a policy-backed, infrastructure-ready, and compliance-efficient route to establish export-oriented operations in India. When structured correctly, an SEZ unit can significantly reduce indirect tax costs, streamline customs processes, and provide long-term operational certainty—making it a powerful India-entry vehicle for global businesses.

At India Company Incorporation, we provide end-to-end SEZ advisory and implementation support, assisting clients throughout the entire SEZ lifecycle from assessing the suitability of an SEZ structure and optimal location, to securing the Letter of Approval (LOA) and other statutory clearances. We also advise on GST, customs, and FEMA structuring, including zero-rated supplies, IGST exemptions, and refund mechanisms, and support ongoing compliance to ensure a smooth, compliant, and tax-efficient SEZ operation.

How India Company Incorporation Helps You Set Up in SEZ

India Company Incorporation provides end-to-end advisory and execution support for establishing and operating an entity in a Special Economic Zone (SEZ) in India. Our approach is aligned with SEZ regulations and your commercial objectives, ensuring a compliant, efficient, and future-ready Company Registration services in india while avoiding regulatory gaps, approval delays, and structural inefficiencies.

Our SEZ Entity Setup Services Include

1. Feasibility and Eligibility Assessment

Evaluation of the proposed business model against permitted activities under the SEZ framework
Assessment of eligibility under SEZ laws, rules, and sector-specific guidelines
Advisory on location selection and suitability across notified SEZs in India

2. Entity Structuring and Incorporation Support

Advisory on optimal legal structure (Company, LLP, Branch Office) for SEZ operations
End-to-end support for entity incorporation and statutory registrations
Structuring for efficient ownership, governance, capitalisation, and operational control

3. SEZ Approval and Registration Support

Preparation and filing of applications with the Development Commissioner
Support for obtaining Letter of Approval (LoA) and SEZ registration
Advisory on unit approval process, timelines, and conditions

4. FEMA, FDI, and Cross-Border Structuring

Advisory on FDI policy and FEMA compliance for SEZ entities
Structuring of capital infusion, profit repatriation, and intercompany arrangements
Support on RBI reporting and foreign exchange documentation

5. Tax and Indirect Tax Advisory for SEZ Units

Advisory on income tax benefits, exemptions, and deductions available to SEZ units
GST advisory on zero-rated supplies, input tax credit, and compliance framework
Structuring to optimise direct and indirect tax efficiency

6. Ongoing Compliance and Operational Support