Why in News?
Data shared in the Lok Sabha (Dec 2025) shows 466 SEZ units closed in the last five years (FY21–FY25) across seven SEZs, mainly due to global demand slowdowns, Covid-19 disruptions, and competitive pressures.
Description:
About SEZs:
- Special geographical enclaves within a country that operate under liberal economic regulations to promote exports, investment, and employment.
- Offer duty-free imports, tax incentives, simplified regulatory processes, world-class infrastructure, and business-friendly procedures.
- Types include Free Zones (FZs), Free Trade Zones (FTZs), Industrial Estates (IEs), Free Ports, Export Processing Zones (EPZs).
SEZs in India — Evolution:
- Asia’s first EPZ: Kandla (Gujarat), 1965.
- SEZ Policy introduced: 2000.
- SEZ Act, 2005 + SEZ Rules (effective Feb 10, 2006).
- 8 EPZs converted into SEZs: Kandla, Surat, Mumbai, Cochin, Chennai, Visakhapatnam, Falta, Noida.
- Operational SEZs (as of March 31, 2024): 280
Rules Pertaining to SEZs:
- SEZs are duty-free enclaves considered outside India’s customs territory for authorised operations.
- Duty-free imports and domestic procurement for SEZ development and operations.
- No import licence required; manufacturing & services both allowed.
- Income Tax benefits (Section 10AA):
- 100% tax exemption for first 5 years
- 50% for next 5 years
- 50% exemption on reinvested export profits for next 5 years
- GST exemptions: Supplies to SEZ are zero-rated under IGST Act, 2017.
- Must maintain Positive Net Foreign Exchange (NFE) over 5 years.
- Domestic sales permitted but attract full customs duty because, in law, an SEZ is treated as a territory outside India’s customs jurisdiction (a “foreign territory” for trade operations).
- Subject to Minimum Alternate Tax (MAT).
- Single-window clearance for approvals.
- Subcontracting allowed.
- No routine customs inspections; risk-based checks.
- SEZ Developers and Units eligible for direct & indirect tax benefits per SEZ Act, 2005.
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