- SEZ unit may import or procure from the domestic sources, public or private bonded warehouses, or international exhibitions held in India, duty free, all goods, namely capital goods, raw materials, consumables, spares, packing materials, office equipments, DG sets etc. without any licence or specific approvals, including goods required for setting up of unit.
- Good imported/procured locally duty free may be utilized within validity period of LOP.
(II) INCOME TAX
- 100% Income Tax exemption under section 10A of the Income Tax Act, 1961 for first 5 years, 50% for 3 years thereafter to the SEZ units (for unit set up prior to 01-04-2005).
- 100% Income Tax exemption under section 10AA of the Income Tax Act, 1961 for first 5 years, 50% for next 5 years and for next 5 years 50% of the profit if such profit is reinvested to the SEZ units who begins to manufacture or produce articles or things or provide any services during the previous year relevant to any assessment year commencing on or after the 1st day of April, 2006.
(III) FOREIGN DIRECT INVESTMENT:
- FDI upto 100% allowed through the automatic route for all manufacturing activities in Special Economic Zones (SEZs), except for the following activities:-
- Arms and ammunition, explosives and allied items of defense equipment, defense aircrafts and warships.
- Atomic substances.
- Narcotic and psychotropic substances and hazardous chemicals.
- Distillation and brewing of alcoholic drinks and
- Cigarettes/Cigars and manufactured tobacco substitutes.
- Sectoral norm as notified by Government shall apply to foreign investment in services.
- The cases not covered by automatic route are considered and approved by the Board of Approvals.
- Setting up of Off-shore Banking Units allowed in SEZs. These banks are virtually foreign branches of the banks but located in India. These OBUs are exempted from Cash Reserve Ratio (CRR), SLR (Statutory Liquidity Ratio) and would give access to SEZ units and SEZ developers finance at international rates. (RBI Notification No. 42/23.13.004/2002-03 dated 2/11/2003).
- The major incentive available to Off-shore Banking Unit is 100% income tax exemption for 5 consecutive years and 50% for next 5 years under Section 80LA of the Income Tax Act (Second Schedule to the SEZ Act).
- Application for setting up of Off-shore Banking Unit need to be made to the Reserve Bank of India in Form-VI prescribed under Section 23 of the Banking Regulation Act, 1949 (Rule 21).
- The guidelines governing the operation of Off-shore Banking units are indicated in the Notification No. FEMA 71/2002-RB dated 07-09-2002 issued by the Reserve Bank of India.
- External commercial borrowings by units upto USD 500 million a year allowed without any maturity restrictions.
- Freedom to bring in export proceeds without any time limit. (RBI A.P. (DIR Series) Circular No.91 dated 1/4/2002 Master Circular No. 9/2006-07, dated 01/07/2006).
- 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.
- Write-off of unrealized export bills allowed to SEZ units.
(VI) Exemption from Central Sales Tax:
- Exemption from payment of Central Sales Tax on sales made from Domestic Tariff Area to SEZ units under section 26(1) (g) of SEZ Act, 2005.
(VII) Exemption from Service Tax:
- Services rendered to the SEZ developers or SEZ unit are exempted from payment of service tax under section 26(1)(e) of the SEZ Act, 2005.
- Information Technology SEZ do not require environment clearance. However, environmental clearance as required under the law is required and the Board of Approvals does not include environmental clearance.
- For development of SEZs, public hearing is not exempted and the process of Environmental Impact Assessment (EIA) as laid down in the notification of the Ministry of Environment would have to be adhered to.
(IX) Concession under Companies’ Act:
- Enhanced limit of Rs. 2.4 crores per annum allowed for managerial remuneration.
- Regional Office of Registrar of Companies in SEZs.
- Exemption from requirement of domicile in India for 12 months prior to appointment as Director.
(X) Concession under Drugs and CosmeticS ACT:
- Exemption from port restriction under Drugs & Cosmetics Rules.
(XI) Labour Laws for SEZ uniT:
The labour laws of the land apply to all units inside the Zone. However, the respective State Government may declare units within the SEZ as public utilities and may delegate the powers of the Labour Commissioner to the Development Commissioner of the SEZ.
- Public Utility Status: SEZ have been declared as a public utility by the State Governments of Andhra Pradesh, Madhya Pradesh, Maharashtra, West Bengal, Karnataka and Uttar Pradesh from the inception of the Zone. Public utility status is at present given for six months at a time as per the Industrial Disputes Act to prevent strikes without due notice.
- Delegation of powers of Labour Commissioner to the Development Commissioner: Governments of Andhra Pradesh, West Bengal, Karnataka and Uttar Pradesh have delegated the powers of Labour Commissioner to the Development Commissioner of SEZ in respect of the units located in the Zone.
(XII) Exemption from Employees Provident Funds Act and ESI act:
As per the Ministry of Labour, in respect of SEZs, the State Government may apply for exemption to the Central Government under Section 16 (2) of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, from the applicability of the provisions of the said Act to SEZ for 5 years. The decision is required to be taken on case to case basis.
In respect of the Employees’ State Insurance Act, 1948, the State Government, being the appropriate Government, may take a decisions as per the powers provided under the Act.
(XIII) Benefits to Domestic Supplies/Supplier to SEZ:
Supplies from Domestic Tariff Area (DTA) to SEZ are treated as physical exports and supplies are entitled to:-
- Duty drawback/DEPB/DFRC/Advance License
- Exemption from payment of Central Excise Duty
- CST exemption
- Exemption from State Levies.
- Discharge of Export Obligation, if any, on the supplier
Duty drawback/DEPB can be claimed by the DTA Supplier subject to production of disclaimer from SEZ unit/developer.
(XIV) STATE TAXES AND LEVIES:
- Stamp Duty and Registration Fees are exempted.
- Sales Tax, Purchase Tax, Luxury Tax, Entertainment Tax and Other Taxes and Cess payable on Sales and Trans Actions
- Inputs (Goods & Services) made to Zone Units from Domestic Tariff Area shall be exempted from Sales Tax and other taxes under the state laws.
(XV) SUB – CONTRACTING:
- SEZ Units may Sub-Contract Part of production process through units in the DTA.
- SEZ Units may also Sub-Contract part of their production process abroad.
- SEZ Units may also undertake job work from DTA Units for export.
(XVI) OTHERS:
- Trading Units in SEZ are allowed (Vide Instruction No.7/2006) Generation, Transmission and Distribution of Power in SEZ allowed smooth functioning due to single window clearance system for SEZ. The Units enjoy public utility status which protects the interests of the Units preventing sudden distribution of work (Flash Strikes) Several states are amending labour laws by providing exemptions to SEZs from contract labour, industrial disputes act and other acts.