What exactly is a special economic zone?

The concept of Special economic zones is expected to bring huge dividends and revenues to the state in terms of economic and industrial development and the generation of new upcoming employment opportunities. Economic growth being a vehicle to country’s Gross Domestic Product, special economic zones acts as an engine for the growth to power through.

The official definition for the Special Economic Zones (SEZ) is provided as “a specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs”.

Special Economic Zones covers a broad range of more specific zones such as:

  • Free trade zones (FTZ)
  • Export processing zones (EPZ)
  • Free zones (FZ)
  • Industrial estates (IE)
  • Free ports (FP)
  • Urban enterprise zones and others.

SEZs can be categorised on the basis of sector, function or location and are required to have processing as well as non-processing area.

  1. SECTOR SPECIFIC SEZ – Where manufacturing of goods and rendering of services takes place in an explicit sector.
  2. MULTI PRODUCT SEZ – Where manufacturing of multiple goods takes place in one sector or across multiple sectors, including trading and warehousing activities.
  3. SEZ IN A PORT OR AIRPORT – SEZ in an existing port or an airport for manufacturing of goods falling in two or more sectors, including trading and warehousing activities.

Benefits of special economic zones or software technology parks in India.

Special economic zones in India are taken as a trade capacity development tool, with the aim to promote quick economic growth using business and other tax incentives to gain foreign investment and technology. By providing privileged terms, SEZs attract lucrative investments and foreign exchanges, generate employment opportunities and also gives a boost to technological development and infrastructure.

Majority of developing nations round the globe have recognised the relevance of encouraging international trade for a sustained economic growth and maximised contribution to the GDP of the nation. As a part of its commitment to liberalisation, GOVERNMENT OF INDIA (GoI) over the past decade adopted a multi-pronged approach to enhance foreign investment in India.


Numerous engineering services companies have contributed to the development of special economic zones in India. An eminent example is the Precision Engineering and Manufacturing SEZ unit in Belgaum. This unit acts as a base for foundry operations for multiple industrial and automotive facilities. There is presence of more than 100 foundries and 150 machine shops. Simultaneously, there is access to skilled labor force at a competitive price range.

This Engineering SEZ provides and organic, eco-friendly and a sustainable development. Other SEZ benefits and incentives includes-

  • There’s international standard landscaping with approximately 15,000 trees
  • Bicycles for intra zone mobility
  • Rain water harvesting
  • Sewage treatment plant
  • Any existing small stream to be turned into a natural water body

In all its totality, SEZs in India has helped to increase the international trade volume, with a huge amount of foreign investment being directed not only to export trade but also into infrastructure construction and commerce. Units also  get various customs  benefits.

SEZ units have been independency for importing or procurement from the domestic resources, duty free, any requirement they want to meet in respect to capital goods, raw materials, packing materials consumables etc.,

Locally procured products or services are given utilisation over a period of five years on approval They also get the benefits of transaction value sale on scraps or rejects and waste.

The Income tax benefits from SEZs are, they get physical benefits on the exports. Also, a hundred percent exemption via article (10A) is provided for the initial five years and then turned down to fifty percent for the coming two years. Provision for allowance of up to fifty percent on reinvestments in the ploughed back profits. And most importantly the losses are not re-instated in the same year, but are carried forward to be nullified.

A hundred percent Foreign direct investment is allowed under the automatic route in the manufacturing sector in special economic zones except for arms and ammunitions, explosive and atomic substances, narcotics and hazardous chemicals, distillation and brewing of alcoholic drinks and cigarettes, cigars and manufactured tobacco substitutes. There is not capital charged on foreign investments for SSI reserved items.

In Banking, Insurance and External commercial borrowings, setting up of any off shore banking units is allowed in special economic zones. There are no time limitations and complete freedom for bringing in export proceeds. Also, there are no maturity restrictions over external commercial borrowings by units up to $500 million a year. It also provides unlimited exemption from any interest rate surcharge on import finance.

In Goods and Service Tax, exemptions are allowed from domestic tariffs areas to special economic zones units.

SEZs are permitted to have nonpolluting industries in IT departments and facilities like golf courses, desalination plants, hotels and non-polluting service industries. They are exempted from public hearing under environment impact assessment notification. And they are also exempted from port restrictions under drugs and cosmetics rules.

Under Companies Act, 2013 – They bring in an enhanced limit of 2.4 crores per annum allowed for managerial remuneration. It also provides agreement to opening of regional office of registrar of companies in special economic zones. They also enjoy exemption from the requirement of domicile in India for 12 months prior to the appointment as the director.

So, as it can be seen, there are numerous benefits when it comes to special economic zones making their way in India. They make our country on the path to become economically powerful and put it on the map alongside other countries. The growing head of special economic zones in India, will prove even more beneficial in coming times.

For further assistance in setting up your unit in SEZ and liasoning with SEZ/STPI authorities, kindly contact us at 9744922222 or associatesageorge@gmail.com

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