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Concept of SEZ

Manikanta Raju CA,CWA,(CS) , Last updated: 02 June 2010  


What is the concept of SEZ??



SEZ is a “Specifically delineated duty free enclave”…….

Let me explain this with an example ------

“Think of sitting in a library and studying and that the library is declared as an SEZ, then, every time you go in & go out, it is treated as a travel to foreign country. Anything you take into library is an export from India. Yes, the library becomes a foreign territory now. Now, think from the other angle, if you sell from your library to say, united states , no Indian laws will be applicable as it’s a sale Between two foreign territories.”

Now, you are mastered the concept of SEZ and let’s see how to start a unit in SEZ, other obligations and other available benefits/advantages. You might have heard of offshore banking unit (OBU), it’s nothing but branch of a banking functioning in SEZ. The term offshore implies that where onshore laws are not applicable.




Branch of a bank located in a SEZ & Which has obtained permission u/s. 23 (1) of Banking Regulation Act, 1949 (Sec 2(U)). Application has to be made to RBI, if satisfied, may give permission subject to certain conditions. The OBU will maintain two bank accounts Viz., USD within India and USD outside India and such banks need not comply with CRR (Cash reserve ratio) or statutory lending rate, etc….. as fixed by RBI.




Procedure to set up a unit in SEZ??



Apply to development commissioner (DC):

3 copies of project proposal – placed before Unit approval committee for approval, subject to conditions/ modifications as may be imposed.

In case of modification/ approval – opportunity of being heard given to applicant.

Later DC gives letter of approval…..



Obligation of SEZ??



ü  Achieve positive net foreign exchange earnings (+ ve NFE)

ü  Periodic reports to DC & Zone customs

ü  Execute a bond with ZC for their operations in SEZ.



Facilities and Incentives for SEZ Developers ??



Ø  Income Tax – Section 80IA

Ø  Service tax, Securities Transaction Tax & Central Sales Tax exemption

Ø  Carry forward of losses

Ø  FEMA – 100% FDI for residential town ships on case-to-case basis; ECB up to USD 500 million per year under automatic route; store export proceeds and keep investing overseas, from EEFC A/C.

Ø  Companies Act- Managerial Remuneration Limit of Rs. 2.4 Crores per annum: Domicile in India for 12 months prior to appointment is exempted.  


For further details please refer SEZ Act, 2005 and the Government of India SEZ site SEZ India



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Manikanta Raju CA,CWA,(CS)
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