Buchprufer Consultants LLP

The policies of Special Economic Zone (SEZ) were implemented in India in order to attract more foreign investment and offer a globally competitive environment for export markets. A Special Economic Zone (SEZ) is a duty-free zone that is treated as foreign territory for the purposes of trade activities, duties, and tariffs. A Special Economic Zone can be established by any individual, partnership business, company, or cooperative organisation. The details for establishing Special Economic Zone registration are outlined in the section 3 of SEZ Act, 2005.

SEZs can be established jointly or severally by the Central Government, state governments, or any other entity (including a private or public limited company, partnership, or sole proprietorship) for the following reasons under the Act:

  • Producing items or manufacturing
  • Services for rendering
  • Both for the production of commodities as well as for the provision of services
  • Region for free trade and warehousing

The SEZ strategy attempted to create a rewarding fiscal environment with the fewest laws and restrictions possible. This measure not only eased procedures, but it also allowed for the growth of infrastructure, commerce, and jobs.

The SEZ Regulations provide:

Incentives and Amenities

The following pictorial representation shows some of the incentives and facilities provided to units in SEZs in order to attract investments, including foreign investment, into the SEZs:

The following are some of the major incentives and facilities available to SEZ developers:

  • Exemption from customs and excise charges for the creation of SEZs for BOA-approved activities.
  • Section 80-IAB of the Income Tax Act provides an income tax exemption on income received from the SEZ development activity for a period of 10 years in 15 years.
  • Section 115 JB of the Income Tax Act exempts you from paying the minimal alternate tax.
  • Section 115O of the Income Tax Act exempts dividend distributions from taxation.
  • Exemption from capital gains tax resulting on the transfer of assets (Machinery, Plant, Building, Land, or any rights in buildings or land) when an industrial venture relocates from an urban area to a SEZ.
  • Environment Protection Act – The establishment of the Information Technology SEZ does not require environmental permission. The public hearing of environmental impact assessment (EIA), as stated in the Ministry of Environment’s announcement, is not exempt and must be followed.
  • The Companies Act – Managerial salary has been increased to Rs. 2.4 crores per year. For a period of 12 months prior to being appointed as Director, you are exempt from the requirement of domicile in India.
  • Employees’ Provident Fund (EPF) – According to the Ministry of Labour, the state government may petition the Central Government for a 5-year exemption from the provisions of the Employees Provident Fund & Miscellaneous Provision Act 1952 under section 16(2).

SEZs can be viewed as drivers of economic growth with high-quality infrastructure and favorable financial package. The benefits of India’s SEZ policy have been enormous, and it has already resulted in a massive rise in the number of international companies operating in the country.