A Special Economic Zone unit is a business approved to operate inside a notified zone that the law treats, for its authorised operations, as territory outside the customs territory of India. That one sentence explains everything the unit gets and everything it owes. What comes in from abroad is not an import, so no duty is paid. What goes in from the rest of India is an export, so the supplier's GST is zero rated. What comes out into India is an import, and duty is paid then. SEZ stands for Special Economic Zone; the rest of the country is the Domestic Tariff Area, or DTA.
For a decade the honest advice on SEZs was cautious: the income-tax holiday had closed, sales into India carried full duty, and the zones were losing tenants to MOOWR. 2026 has changed the arithmetic. Manufacturing units can sell into India at concessional duty for one year, a committee is redrawing the scheme, and exports are at a record. This page is for a manufacturer or services company deciding on a zone unit, and for an existing unit deciding what to do with the new rules. For holding trading stock, see the FTWZ page.
SEZ benefits in 2026: what a unit gets
Special Economic Zone benefits flow from one provision, Section 26 of the Act, and five of them matter.
- Duty-free imports. Capital goods, raw materials, consumables and spares for authorised operations enter without basic customs duty, IGST or cess. Not deferred, as in a bonded warehouse; not payable at all unless the goods later leave for India.
- Zero-rated domestic procurement. An Indian supplier treats its supply to the unit as an export under Section 16 of the IGST Act, sells under a Letter of Undertaking without charging tax, and claims its own refund.
- Exports without tax, with unutilised input tax credit refundable.
- One regulator, on site. The Development Commissioner handles approvals; a Customs office inside the zone handles movements through SEZ Online, not the port queue.
- No ceiling on sales into India. The price is full duty at the gate, which is what the 2026 notification reduces for a year.
Two things a unit does not get, because people still ask. The income-tax deduction under Section 10AA is available only to units that began operations by 31 March 2020; a unit set up today chooses a zone for its Customs and GST treatment, not for income tax. Nor do the concessions reach employees: staff of a zone unit pay income tax like anyone else.
For a services unit, and IT and ITeS units are the largest single category in the zones, the duty question is smaller and the rest is the same: equipment comes in free, domestic inputs are zero rated, and the NFE test applies to service earnings exactly as it does to goods. What changes for services units this year is on the banking side. From 1 October 2026 the SOFTEX form gives way to the Export Declaration Form under the new FEMA regulations, and the unit's bank, not STPI, becomes the authority that closes each export.
What the unit owes: NFE, the annual report and the bond
- Positive Net Foreign Exchange over each five-year block under Rule 53: exports and other permitted earnings must exceed imported goods and services. A unit that buys heavily abroad and sells mostly in India fails the test, which is why the sales mix decides whether the zone fits before anything else does.
- The Annual Performance Report in Form I, examined by the Unit Approval Committee. An NFE shortfall leads to notices, penalty proceedings under the Foreign Trade (Development and Regulation) Act and, at worst, cancellation of the approval.
- The bond-cum-legal undertaking in Form H, which secures the duty foregone. Every import, DTA purchase, sub-contract and temporary removal moves against it, signed off by the Specified Officer, the Customs officer posted to the zone and the person the unit deals with every week. Rule 74 governs exit, and the duty on goods in the unit at that point is what an exit actually costs.
SEZ and DTA: what a sale into India costs
The Domestic Tariff Area is India outside the zones. A supply from the DTA into the zone is an export. A supply from the zone into the DTA is an import under Section 30 of the SEZ Act and Rules 47 and 48: a bill of entry is filed and customs duty and IGST are paid at the rates for that product, exactly as if it had come off a ship. This is the rule that kept the zones unattractive for anyone with a large home market, and the rule that April 2026 has partly suspended.
The 2026 change: selling into India at concessional duty
Notification No. 11/2026-Customs of 31 March 2026, a one-time measure announced in Budget 2026-27, lets an SEZ manufacturing unit clear its own manufactured goods into the DTA at a concessional rate of basic customs duty, and in specified cases of agriculture cess, between 1 April 2026 and 31 March 2027. The Department of Commerce expects about 1,200 units to qualify. Every condition is a place where a claim can fail.
| Condition | What it requires |
|---|
| Who | A manufacturing unit in an SEZ that commenced production on or before 31 March 2025. FTWZ units are excluded |
| What | Goods manufactured in the unit. Goods imported and removed as such, or after use, get nothing |
| Value addition | At least 20 per cent on the formula below |
| Ceiling | Clearances in a year cannot exceed 30 per cent of the highest annual FOB value of exports of manufactured goods in any of the three preceding financial years |
| No stacking | No drawback or Foreign Trade Policy benefit taken, by the unit or its supplier, on the inputs used |
| Paperwork | A bill of entry for home consumption on ICEGATE, and a Development Commissioner's certificate of the production date, the three years' export values and the value addition achieved |
| Rate | Table I covers chemicals, plastics, textiles, machinery and electronics; Table II lists specific goods. Rates generally fall between 6.5 and 12.5 per cent, against tariff rates of up to 20 per cent. Check your own tariff line |
Value addition = (A − B − C) ÷ (B + C) × 100, where A is the assessable value of the goods removed, B the CIF value of imported inputs and C the value of inputs bought from the DTA.
Where claims will fail:
- The ceiling is a three-year lookback, not a forecast. A unit whose best export year was small has a small window, whatever its capacity today.
- Assembly is not value addition. Twenty per cent needs real conversion cost. A unit that imports kits and screws them together will fail, and the certificate makes the unit answerable for the figure.
- IGST is not in the notification. Take a position on IGST, and on the credit the buyer can claim, before the first removal, not after the audit.
- It ends on 31 March 2027. Plan the year's removals now. Nothing promises a renewal, although the committee below may recommend one.
SEZ 2.0: what the committee is looking at
In February 2026 the Department of Commerce constituted a 17-member inter-ministerial committee under Ajay Bhadoo, Additional Secretary, with members from Commerce, DPIIT, CBIC and NITI Aayog, to write a concept paper for an SEZ 2.0 policy and to study harmonising the schemes that now overlap: SEZ, EOU, MOOWR, Advance Authorisation, EPCG and DFIA. It heard more than a hundred developers, units and advisers at Vanijya Bhawan on 30 June 2026. The direction is easier domestic sales and fewer parallel regimes. For a unit being planned now: draft the authorised operations wide, keep NFE headroom, and do not sign a structure that only works if today's DTA rules stay exactly as they are.
SEZ, EOU, MOOWR or DTA: which fits
| SEZ unit | EOU | MOOWR | DTA unit |
|---|
| Location | Inside a notified zone | Anywhere | Anywhere, licensed premises | Anywhere |
| Duty on imports | Exempt | Exempt | Deferred until domestic clearance | Paid on arrival |
| Domestic purchases | Zero rated | Deemed export refund route | Ordinary GST | Ordinary GST |
| Sale into India | Full duty; concessional for one year under 11/2026 | Duty on the imported inputs used | Duty on the imported inputs, no interest | None |
| Obligation | Positive NFE, five-year block | Positive NFE | None | None |
| Best for | Export-led, high import content, wants zone infrastructure | Export-led, fixed on a location outside a zone | Domestic-led with imported inputs | Low import content |
The short test: if more than half of what you make will be sold in India, look at MOOWR first. If exports lead and imported content is high, the zone is usually cheapest, and the 2026 notification has made the domestic slice cheaper as well.
- Choose the zone and get the developer's consent letter for the space. Sector-specific zones admit only their sector; multi-product zones admit most manufacturing.
- Apply in Form F to the Development Commissioner on SEZ Online, with a project report: product, process, capacity, the five-year export and DTA projection and the NFE it produces, investment, employment and the promoters' background.
- The Unit Approval Committee, chaired by the Development Commissioner with Customs and state representatives, asks four things: is the NFE projection credible, does the operation fit the zone's sector, is a related DTA business simply being shifted, and does the list of authorised operations match what the unit will really do.
- The Letter of Approval issues in Form G, valid for one year to commence production, extendable. Its list of authorised operations is the document every later officer reads.
- Then the bond in Form H, the unit's own GST registration (separate from the company's DTA business under the proviso to Section 25 of the CGST Act, on the same PAN), the Importer Exporter Code, and the Letter of Undertaking for zero-rated supplies.
The time goes into the project report and the committee's queries, not into the committee itself. Thin projections and operations lists drafted to match the approval rather than the business are what add months.
GST for an SEZ unit, in three lines
- A supplier invoices the unit under LUT at zero rate; the supply must be for authorised operations and endorsed by the Specified Officer for the supplier's refund to hold.
- On a DTA sale, IGST is paid at the customs gate with the duty, and the buyer takes credit on the bill of entry.
- The unit's registration carries the SEZ flag on the certificate and on the portal, which is how a supplier confirms it is dealing with a zone unit.
SEZ Act 2005 and SEZ Rules 2006: the provisions a unit lives by
| Provision | What it does |
|---|
| Section 26, SEZ Act | The exemptions: customs duty, and through it IGST and cess, on goods for authorised operations |
| Section 30, SEZ Act | Goods removed to the DTA are charged duty as imports |
| Rules 17 to 19 | Form F application, the Unit Approval Committee, the Letter of Approval in Form G and its one-year validity |
| Rule 22 | The bond-cum-legal undertaking in Form H and the Annual Performance Report in Form I |
| Rules 47 and 48 | Sales into the DTA and the bill of entry procedure |
| Rule 53 | Net Foreign Exchange: what counts, over a five-year block |
| Rule 74 | Exit from the scheme and the duty assessed on the way out |
List of SEZs in India: where the working zones are
India has 368 notified zones, 276 of them operational. Exports from operational zones were ₹11.70 lakh crore in the first nine months of 2025-26, up 32 per cent, on ₹7.86 lakh crore of investment and 31.7 lakh jobs; Gujarat alone accounts for about a fifth. The full list of SEZs in India, by state and sector, is maintained on sezindia.gov.in. These are the ones a new unit usually shortlists:
| Sector | Where the working zones are |
|---|
| IT and ITeS | Hyderabad, Bengaluru, Pune, Chennai, Noida, Kolkata |
| Multi-product manufacturing | Mundra, Dahej and Kandla in Gujarat, Sri City in Andhra Pradesh, the Jamnagar refinery zone |
| Pharmaceuticals and chemicals | Hyderabad, Ahmedabad, Dahej, Visakhapatnam |
| Gems and jewellery | SEEPZ Mumbai, Surat |
| Engineering and electronics | Chennai, Sri City, Pune, Noida; Dholera in Gujarat, notified in April 2026 for semiconductors |
| Financial services | GIFT City, Gandhinagar, the only IFSC |
| Trading and warehousing | The FTWZs at Nhava Sheva, Panvel, Chennai, Mundra, Kochi and Khurja |
Before applying
Settle the five-year sales mix and the NFE it produces with a margin; decide whether the unit will use the 2026 window and what value addition it can certify; and draft the authorised operations for what the unit will do in year three, not year one. The zones are the best supported they have been since the Act was passed, and the domestic door has opened a crack. The unit that does well is the one whose approval was written for the business it will become. The firm's SEZ consultants worked on the department side of these approvals before they advised on them; send the product, export share and location and one of them will say whether a zone unit costs you less.
