Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.
Any person, who intends to set up a Special Economic Zone, may after identifying the area make a proposal in Form A to either State Government concerned or Board of Approval.
15 copies of application, indicating name and address of the applicant, status of the promoter along with a project report covering the following particulars may be submitted to the Chief Secretary of the State:
- Location of the proposed Zone with details of existing infrastructure and that proposed to be established;
- Its area, distance from the nearest sea port / airport / rail / road head etc.
- Financial details, including investment proposed, mode of financing and viability of the project.
- Details of foreign equity and repatriation of dividends etc., if any
- Whether the Zone will allow only certain specific industries or will be a multi-product Zone.
The State Government shall, forward it along with their commitment to the following to the Department of Commerce, Government of India:
- That area incorporated in the proposed Special Economic Zone is free from environmental restrictions;
- That water, electricity and other services would be provided as required;
- That the units would be given full exemption in electricity duty and tax on sale of electricity for self-generated and purchased power;
- To allow generation, transmission and distribution of power within SEZ;
- To exempt from State sales tax, octroi, mandi tax, turnover tax and any other duty/cess or levies on the supply of goods from Domestic Tariff Area to SEZ units;
- That for units inside the Zone, the powers under the Industrial Disputes Act and other related labour Acts would be delegated to the Development Commissioner and that the units will be declared as a Public Utility Service under Industrial Disputes Act.
- That single point clearances system and minimum inspections requirement under State Laws/Rules would be provided.
The proposal incorporating the commitments of the State Government will be considered by an Inter-Ministerial Committee in the Department of Commerce. On acceptance of the proposal, a letter of permission will be issued to the applicant.
- Only units approved under SEZ scheme would be permitted to be located in SEZ.
- The SEZ units shall abide by local laws, rules, regulations or bye-laws in regard to area planning, sewerage disposal, pollution control and the like. They shall also comply with industrial and labour laws as may be locally applicable.
- Such SEZ shall make security arrangements to fulfill all the requirements of the laws, rules and procedures applicable to such SEZ.
- The SEZ should have a minimum area of 1000 hectares and at least 25 % of the area is to be earmarked for developing industrial area for setting up of units.
- Minimum area of 1000 hectares will not be applicable to product specific and port/airport based SEZs.
- Wherever the SEZs are landlocked, an Inland Container Depot (ICD) will be an integral part of SEZs.
- Detailed guidelines on setting up of SEZ in the Private/Joint/State Sector is given in Appendix 14-II.N of Handbook of Procedures Volume I.
State Governments will have a very important role to play in the establishment of SEZ. Representative of the State Government, who is a member of the Inter-Ministerial Committee on private SEZ, is consulted while considering the proposal. Before recommending any proposals to the Ministry of Commerce & Industry (Department of Commerce), the States must satisfy themselves that they are in a position to supply basic inputs like water, electricity, etc.
The major incentives and facilities available to SEZ developers include:-
- Exemption from customs/excise duties for development of SEZs for authorized operations approved by the BOA.
- 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.
- Exemption from dividend distribution tax under Section 115O of the Income Tax Act.
- Exemption from Central Sales Tax (CST).
- Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act).
- 100% FDI allowed for:(a) townships with residential, educational and recreational facilities on a case to case basis,(b)franchise for basic telephone service in SEZ.
- Income Tax benefit under ( 80 IA ) to developers for any block of 10 years in 15 years.
- Duty free import/domestic procurement of goods for development, operation and maintenance of SEZs
- Exemption from Service Tax /CST.
- Income of infrastructure capital fund/co. from investment in SEZ exempt from Income Tax
- Investment made by individuals etc in a SEZ co also eligible for exemption u/s 88 of IT Act
- Developer permitted to transfer infrastructure facility for operation and maintenance.
- Generation, transmission and distribution of power in SEZs allowed
- Full freedom in allocation of space and built up area to approved SEZ units on commercial basis.
- Authorised to provide and maintain service like water, electricity, security, restaurants and recreation centres on commercial lines.
For setting up a manufacturing, trading or service units in SEZ, 3 copies of project proposal in the format prescribed at Appendix 14-IA of the Handbook of Procedures, Vol.1 to be submitted to the Development Commissioner of the SEZ.
All approvals are to be given by the Unit Approval Committee headed by the Development Commissioner (DC). Clearance from the Department of Policy and Promotion/Board of Approvals, wherever required will be obtained by the Development Commissioner. A Letter of Approval to set up a unit in a SEZ is issued by the DC, provided the unit meets all the criteria specified in the Application. The procedure of application is detailed under Clause 17 of the SEZ Rules, 2006.
- SEZ units have to achieve positive net foreign exchange earned over five years i.e. Exports (FOB value of all exports) - Imports (CIF value of all imports) > 0. Please see Clause 53 of Chapter VI of the SEZ Rules, 2006 for a more detailed explanation
- For this purpose, a Legal Undertaking is required to be executed by the unit with the Development Commissioner
- Any company set up with FDI has to be incorporated under the Indian Companies Act with the Registrar of Companies for undertaking Indian operations
- The units have to maintain proper records of accounting
- Annual Performance Reports must be submitted to the Development Commissioner
- The units are also to execute a bond with the zone Customs for their operations in the SEZ
The incentives and facilities offered to the units in SEZs for attracting investments into the SEZs, including foreign investment include:
- Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units
- 100% Income Tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.
- External commercial borrowing by SEZ unitsupto US $ 500 million in a year without any maturity restriction through recognized banking channels.
- Exemption from Central Sales Tax.
- Exemption from Service Tax.
- Single window clearance for Central and State level approvals.
- Exemption from State sales tax and other levies as extended by the respective State Governments.
Foreign Direct Investment:
- 100% foreign direct investment is under the automatic route is allowed in manufacturing sector in SEZ units except arms and ammunition, explosive, atomic substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes , cigars and manufactured tobacco substitutes.
- No cap on foreign investments for SSI reserved items.
Banking / Insurance/External Commercial Borrowings:
- Setting up Off-shore Banking Units allowed in SEZs.
- OBU's allowed 100% Income Tax exemption on profit for 3 years and 50 % for next two years.
- External commercial borrowings by units up to $ 500 million a year allowed without any maturity restrictions.
- Freedom to bring in export proceeds without any time limit.
- Flexibility to keep 100% of export proceeds in EEFC account. Freedom to make overseas investment from it.
- Commodity hedging permitted.
- Exemption from interest rate surcharge on import finance.
- SEZ units allowed to 'write-off' unrealized export bills.
SEZs permitted to have non-polluting industries in IT and facilities like golf courses, desalination plants, hotels and non-polluting service industries in the Coastal Regulation Zone area
Exemption from public hearing under Environment Impact Assessment Notification
- SEZ units may sub-contract part of production or production process through units in the Domestic Traiff Area or through other EOU/SEZ units
- SEZ units may also sub-contract part of their production process abroad.
- Agriculture/Horticulture processing SEZ units allowed to provide inputs and equipments to contract farmers in DTA to promote production of goods as per the requirement of importing countries.
Normal Labour Laws are applicable to SEZs, which are enforced by the respective state Governments. The state Government have been requested to simplify the procedures/returns and for introduction of a single window clearance mechanism by delegating appropriate powers to Development Commissioners of SEZs.
Supplies from Domestic Tariff Area (DTA) to SEZ to be treated as physical export. DTA supplier would be entitled to:
- CST Exemption
- Exemption from State Levies
- Discharge of EP if any on the suppliers
Performance of the SEZ units monitored by a Unit Approval Committee consisting of Development Commissioner, Custom and representative of State Govt. on annual basis.
In all SEZ's, the statutory functions are controlled by the Government. Government also controls the operation and maintenance function in the 7 Central Government controlled SEZs. In rest of the operation and maintenance are privatised.
No. State has exempted the sales from DTA to SEZ from local levies and taxes.
Development Commissioner is the nodal officer for SEZs and help in resolution of problem, if any, faced by the units / developer.
Customs examination is to the bear minimum. SEZ units function on self-certification basis.
External commercial borrowings by units up to $ 500 million a year allowed without any maturity restrictions For details please see guidelines issued by RBI (F.No. 4(2)/2002-ECB, dated 15.9.2002 ).
Yes. Inter Unit Sales are permitted as per the Policy. Buyer procuring from another unit pays in Foreign Exchange.
The Developer of a SEZ is responsible for its maintenance.
One condition under which SEZ Units operate is that there is a fixed period of approval during which time the units must meet the condition of achieving positive NFE. This period is 5 years. It is evident that upon completion of this period the unit has the option to exit from scheme (though it may also opt to continue in the SEZ for a fresh period of 5 years) which would also mean its physical departure from particular zone.