India’s Special Economic Zones (SEZs) have been a key driver of export-led growth and global investment attraction for over two decades. Designed as duty-free, growth-focused enclaves, SEZs offer a robust package of tax incentives, infrastructure benefits, and regulatory relaxations to businesses — making them especially attractive for foreign companies looking to set up operations in India.
For global firms seeking a strategic, cost-effective gateway into India’s massive domestic and international markets, SEZs can offer a competitive edge in manufacturing, services, and exports.
What Are SEZs in India?
SEZs are designated geographical zones treated as foreign territory for the purpose of trade operations, duties, and tariffs. Businesses operating within SEZs enjoy streamlined processes, world-class infrastructure, and multiple tax incentives to boost productivity and profitability.
The SEZ Act, 2005, governs the functioning of these zones and outlines the benefits and obligations for units set up within them.
Top Tax Incentives for Foreign Companies in SEZs
1. Income Tax Holiday
100% Income Tax exemption on export profits for the first 5 years,
50% exemption for the next 5 years, and
50% of reinvested profits exemption for another 5 years under Section 10AA of the Income Tax Act.
Only applicable to new units established in SEZs before the sunset date (currently under review and policy reform).
2. Customs & Excise Exemptions
No customs duty on import of capital goods, raw materials, consumables, and spares for SEZ operations.
No excise duty on goods manufactured within SEZs and supplied within the zone.
3. GST Exemptions
Supplies to SEZs are treated as zero-rated under GST.
Input tax credit (ITC) and refund claims are easier and faster for SEZ-based companies.
No GST on services and goods consumed within SEZs, if procured properly.
4. Repatriation Benefits
Full and free repatriation of profits, dividends, and capital is allowed to foreign investors, subject to FEMA compliance.
No restrictions on forex operations within SEZs, simplifying cross-border fund flows.
5. Stamp Duty & Other Local Benefits
Several state governments offer stamp duty exemptions on property and lease transactions in SEZs.
Additional state-level incentives include power tariff concessions, VAT refunds, and labour law relaxations.
Eligibility & Conditions
To avail of SEZ benefits, foreign companies must:
Set up a new unit in a government-notified SEZ
Commit a certain level of positive net foreign exchange (NFE) earnings
Operate as a distinct legal entity for SEZ purposes (no mixing with DTA units)
File periodic returns and undergo compliance audits under SEZ rules