Special Economic Zone (SEZ) is a specifically delineated duty free enclave with all required infrastructure provided under single administrative umbrella primarily meant for locating industries which manufacture and export goods and services. These enclaves shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs.

Under section 3, a Special Economic Zone can be established either by Central Government ,State Government or its agencies, private/public/joint sector or any personfor manufacture of goods or rendering services or for both or as a free trade and warehousing zone.

Yes

• A Developer / An Entrepreneur who is willing to start SEZ needs to locate the area with the minimum land requirement as per SEZ -2006 Rule 5(2) i.e. No minimum land requirement for setting up an for IT/ITES SEZ, Minimum (40 hectares) for Free Trade & Warehousing Zone and for Multi Services (100 hectares) & for Multi product (500 hectares), Sector specific Minimum (50 hectares) SEZ, Only the Minimum build up area (BUA) required in 7 major cities viz. Mumbai, Delhi (NCR), Hyderabad, Banglore, Pune & Kolkata is 1 Lakh sq.mtrs. For B category cities it is 50000 sq. mtrs. & for remaining cities only 25000 sq.mtrs. built up area (BUA) is required, For Food Processing SEZ based on agriculture, minimum land required is 10 hectares
• After identifying the area an applicant needs to be submitted in Form A to the State Government (Rule 3) indicating name and address of the applicant, status of the promoter along with a project report covering the following particulars
• 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 while recommending the proposal shall commit to provide the facilities and incentives such as exemption from state and local levies, exemption from electricity duty, Single Window Clearance under the state laws, etc. as provided in sub-rule (5) of Rule 5 of the SEZ Rules 2006.
• The State Government has to forward the proposal with its recommendations within 45 days from the date of receipt of such proposal from the developer to the Board of Approval (BoA) addressed to Director(SEZ)/Deputy Secretary, Department of Commerce, Udyog Bhavan, New Delhi.
• The Developer also has the option to submit the proposal in Form A directly to the Board of Approval via Director(SEZ)/Deputy Secretary, Department of Commerce, Udyog Bhavan, New Delhi., in such cases the applicant (Developer/Entrepreneur) shall have to obtain the concurrence of the State Government within 6 months from the date of such approval.
• After approval by the Board, the Department of Commerce issues Letter of Approval (LoA) to the applicant (Developer/Entrepreneur) for establishment of SEZ (Rule 6).
• After receipt of the Letter of Approval (LoA) and on submission of details of the land with proof of ownership /leasehold rights of the land, possession certificate and non- encumbrance certificate duly certified by the district revenue authorities and on inspection by the jurisdictional DC, Department of Commerce, shall notify the area as an SEZ (Rule 7 and 8).
• The applicant is required to submit details of the authorized operations proposed to be undertaken in the SEZ so as to obtain authorization for the same from the Board of Approval (BoA).Exemptions of duties and taxes are extended only for the authorized operations.
• Procurement of goods for development of SEZ (for developer only) for authorized operations shall be approved by the Approval Committee at the Zone Level on the basis which goods can be procured without payment of customs duty and excise duty by the developer.

• A processing area is that area of an SEZ where units can be located for manufacture of goods or rendering of services. At least 50% of the area shall be earmarked for developing the processing.
• The non-processing area is the area which is intended to provide support facilities to the SEZ processing area activities and may include commercial and social amenities/infrastructure.

The infrastructure facilities of the SEZ’s are normally to be developed by the developer. The developer if desires, that certain facilities or portion of the SEZ to be developed by another person then the developer can ask the person to file an application with Board of Approval to be considered as a Co-developer . For this the consent of the developer is must. There has to be MoU between Developer and Co-developer and the copy of the same has to be submitted to BoA along with the application of the Co-developer.

• 100% FDI allowed for:
  1. Townships with residential, educational and recreational facilities on a case to case basis,
  2. 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.
• Authorized to provide and maintain service like water, electricity, security, restaurants and recreation centers 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 - IA of the Handbook of Procedures, Vol.1 to be submitted to the Development Commissioner of the SEZ.

There is no restriction on the number of units in the SEZ Act. The space availability depends on the floor space index (FSI) available on that area and Developers capacity to construct.

All approvals to be given by the Unit Approval Committee headed by the Development Commissioner. Clearance from the Department of Policy and Promotion/Board of Approvals, wherever required will be obtained by the Development Commissioner, before the Letter of Intent is issued.

Following incentive/ facilities to SEZ enterprises:

Customs and Excise:

• SEZ units may import or procure from the domestic sources, duty free, all their requirements of capital goods, raw materials, consumables, spares, packing materials, office equipment, DG sets etc. for implementation of their project in the Zone without any licence or specific approval.
• Duty free import/domestic procurement of goods for setting up of SEZ units.
• Goods imported/procured locally duty free could be utilized over the approval period of 5 years.
• Domestic sales by SEZ units will now be exempt from SAD.
• Domestic sale of finished products, by-products on payment of applicable Custom duty.
• Domestic sale rejects and waste and scrap on payment of applicable Custom duty on the transaction value.

Income tax:

• Physical export benefit
• 100% IT exemption (10A) for first 5 years and 50% for 2 years thereafter.
• Reinvestment allowance to the extend of 50% of ploughed back profits
• Carry forward of losses

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.

Central Sales Tax Act:

• Exemption to sales made from Domestic Tariff Area to SEZ units.
• Income Tax Act

Service Tax:

• Exemption from Service Tax to SEZ units

Environment:

• 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

Companies Act:

• Enhanced limit of ₹ 2.4 Crores per annum allowed for managerial remuneration
• Agreement to opening of Regional office of Registrar of Companies in SEZs.
• Exemption from requirement of domicile in India for 12 months prior to appointment as Director.

Drugs and Cosmetics:

• Exemption from port restriction under Drugs & Cosmetics Rules.

Sub-Contracting/Contract Farming:

• SEZ units may sub-contract part of production or production process through units in the Domestic Tariff 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 states 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:

• Drawback/DEPB
• CST Exemption
• Exemption from State Levies
• Discharge of EP if any on the suppliers
• Income Tax benefits as applicable to physical export under section 80 HHC of the Income Tax Act.

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 privatized.

The units would be entitled for a package of Incentives and a simplified operating environment.

No License is required for imports, including second hand machineries.

Development Commissioner is the nodal officer for SEZs and help in resolution of problem, if any, faced by the units / developer.