Special Economic Zone (SEZ)

It is an area in which business and trade laws differ from the rest of the country. SEZs are located within a country’s national borders, and their aims include increased trade, increased investment, job creation and effective administration.

The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000. The prime objective was to enhance foreign investment and provide an internationally competitive and hassle free environment for exports. The idea was to promote exports from the country and realizing the need that level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally. First private SEZ in India has started in Surat.

Incentives for Setting Up in an Indian SEZ:

The advantages of setting up a sourcing or manufacturing platform within a SEZ are numerous and include:

  • Duty-free domestic procurement of goods for the development and maintenance of your company;
  • 100% income tax exemption on export income for first five years, 50% for five years following;
  • Exemption from Minimum Alternate Tax, Central Sales Tax, Service Tax, State Sales Tax, and a number of other taxes usually levied by local governments;
  • External commercial borrowing allowed up to USD 500 million a year without restriction;
  • Permission to manufacture products directly, as long as the goods you are producing fall within a sector which allow 100% FDI
  • Single window clearance for Central and State level approvals.
  • SEZ exporters kept outside the purview of routine problem like customs delays, complex Exim procedure etc.
  • A supplier to a SEZ is deemed to be an exporter.
  • 100% FDI is allowed for new units in SEZs.

Overseas Banking Unit (OBU):

  • RBI issued a scheme to set up Overseas Banking Unit (OBU) in SEZ.
  • The objective of OBU is to give SEZ units access to international finance at global rates.
  • The bank authorized to deal in forex can have more than one OBU, but not in the same SEZ.
  • OBUs are prohibited from participating in the domestic money market and payment systems.
  • An OBU from on SEZ cannot lend money to a unit in other SEZs.
  • An OBU is required a minimum of USD 10 million to enable it to start operations.
  • All norms applicable to overseas branches of Indian banks apply to OBU.
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