Special Economic Zones (SEZ) Scheme

April 12, 2017 March 25, 2022

Special Economic Zones Act, 2005, was passed by Parliament in May, 2005 and received Presidential assent on the 23rd of June, 2005. The act envisages 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.

Salient Features

A SEZ is a designated duty free enclave to be treated as foreign territory for the purpose of trade operations and duties and tariffs. A SEZ does not require a license for imports. Other notable features are as follows:

  • The units must become net foreign exchange earners within 3 years
  • SEZ are allowed manufacturing, trading and service activities.
  • Full freedom for subcontracting.
  • The domestic sales from the SEZ are subject to full custom duties and import policy is in force, when they sell their produce to domestic markets.
  • There was no routine examination by the custom authorities.
  • The corporation in SEZs will not have to pay any income tax on their profits for the first five years and only 50% of the tax for 2 more years thereafter.
  • If half of the profit is reinvested in the corporation, the concession of 50% tax is extendable for next 3 years.
  • For SEZ developers , the raw material from cement to steel to electrical parts are subject to zero tax and duty.
  • For the SEZ, the Government acquires vast land tracts and gives to the developers. The basic condition involves that 25% of the area of the SEZ must be used only for export related activities. Rest 75% area can be used for economical and social infrastructure. However, all SEZ benefits are applicable over the entire SEZ area.
  • There were provisions for sector specific SEZs and Multiproduct SEZs.
  • The Sector specific SEZ may have 7500 houses, hotels with 100 rooms, 25 bed hospital , schools and other institutions, a multiplex in 50000 sq. meters.
  • Multiproduct SEZ are allowed to build 25000 houses. 250 room hotel and 100 bed hospital along with a multiplex with 2 lakh sq. meters.

How a SEZ is created?

There is a well defined approval mechanism for SEZ. The developer submits the proposal for establishment of SEZ to the concerned State Government.

  • The net worth of the applicant is to be Rs. 50 crore minimum and investment criterion of Rs. 250 Crore for sector specific SEZ. Net worth for Multiproduct SEZ was fixed Rs. 250 Crore and investment of 1000 Crore.

The State Government has to forward the proposal with its recommendation within 45 days from the date of receipt of such proposal to the Board of Approval. However, the applicant also has the option to submit the proposal directly to the Board of Approval. The Board of Approval has been constituted by the Central Government in exercise of the powers conferred under the SEZ Act. All the decisions are taken in the Board of Approval by consensus. The Board of Approval has 19 Members. The Chairman of the BoA is Secretary, Department of Commerce. The Board may approve as such or modify and approve a proposal for establishment of a Special Economic Zone, in accordance with the SEZ Rules, subject to the requirements of minimum area of land and other terms and conditions indicated in the SEZ Rules. Once the BOA gives formal approval and the concerned Development Commissioner gives an inspection report certifying the contiguity and vacancy of the area, the area is notified as SEZ.

Minimum Land Area Requirements

Minimum area requirements for setting up a SEZ are as follows:

  • 500 Hectares for Multi Sector SEZ
  • 50 Hectares for sector specific SEZ

Recent Government Initiatives to promote SEZ

  • Minimum Land Area requirement for setting up of new SEZs has been reduced to 50% for Multi-product and Sector-specific SEZs.
  • Sectoral broad-banding has been introduced to encompass similar / related areas under the same Sector.
  • A new sector ‘agro-based food processing’ sector has been introduced to encourage agro-based industries in SEZs.
  • Dual use of facilities like Social & Commercial infrastructure by SEZs and non-SEZs entities has been allowed in order to makeSEZ operations more viable.
  • Online processing of various activities relating to SEZ Developers and Units has been introduced for improving ease of doing business.
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