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Home / Articles / All about Special Economic Zones (SEZ) Act, 2005 By Junaid Akter

All about Special Economic Zones (SEZ) Act, 2005 By Junaid Akter

December 23,2018:

The Author, Junaid Akhter, is a 2nd year student of  Dr. Ram Manohar Lohia National Law University Lucknow. He is currently interning with LatestLaws.com.

Q1. What is a Special Economic Zone?

Ans. A special economic zone is a specific area where business and trade laws are different from the rest areas of the country and the industrialist gets various tax incentives for setting up business.

Q2. What areas are included under Special Economic Zones in India?

Ans. At present there are eight functional special economic zones located at Santa Cruz (Maharashtra), Cochin (Kerala), Kandla and Surat (Gujarat), Chennai (Tamilnadu), Vishakhapatnam (Andhra Pradesh), Noida (Uttar Pradesh) and Falta (West Bengal). Also, a new special economic zone at Indore (Madhya Pradesh) is now ready for operation.

In addition to this, 18 more special economic zones are approved by the govt. which includes Positra (Gujarat), Navi Mumbai (Maharashtra), Nanguneri (Tamilnadu), Kulpi and Salt Lake (West Bengal), Bhadohi, Moradabad, Kanpur, Greater Noida (U.P.), Paradeep (Orissa), Kakinada (Andhra Pradesh), Vallarpadam (Kerala), Hassan (Karnataka), Jaipur and Jodhpur (Rajasthan) etc.

Q3. Can Foreign Companies set up units in SEZs?

Ans. Yes

Q4. Who has authority to set up SEZs?

Ans. Special economic zone can be set up State governments or any of its agencies or any public, private as well as joint sector[1].

Q5. What is the procedure to be followed for setting up of SEZs?

Ans. A person applying for setting up SEZ shall submit a report containing[2]:-

  • Location of the proposed zone
  • Distance from seaport/airport/road etc.
  • Its approval regarding specific Industry zone or multi-product zone
  • Financial Details including mode of Investment

The State government shall have to recommend on the basis of:-

  • Area being free from environmental restrictions
  • That water, electricity would be provided
  • That full exemption from electricity duty shall be given
  • That full exemption from mandi tax, State sales tax, octroi, turnover tax shall be given.

On acceptance of proposal by the Department of Commerce, the approval of application shall be notified to the applicant[3].

Q6. What are the guidelines to be followed for setting up SEZs?

Ans. The SEZ units shall not violate local laws, rules and regulations with reference to sewage disposal, pollution control etc. The SEZ units shall abide by labour and industrial laws locally applicable and shall make necessary security arrangement in order to follow the applicable rules and regulations on SEZ units. The Multi-product SEZs shall have a minimum area of about 1000 hectares.

Q7. What incentives are provided to SEZ developer?

Ans. Following incentives are provided to SEZ developer:-

  • Exemption from custom and excise duties for the development of SEZs
  • Exemption from Sales Tax and Service Tax.
  • Exemption from Income tax on income obtained by development of SEZs.

Q8. What role does State government play in the formation of Special Economic Zone?

Ans. State government play a very important role as their representative are being consulted with regard to the formation of SEZ as they hold a membership of Inter- Ministerial Committee. A proposal is allowed only when states approve that they are able to provide basic necessities like electricity, labours etc.

Q9. What is the procedure for setting up a unit in SEZ?

Ans. Any person who intends to setup a unit in SEZ shall have to submit a proposal to the Development Commissioner concerned, in the prescribed form.

Q10. What is the obligation of units under the SEZ scheme?

Ans. The units are under an obligation to provide periodical report about its functions and operations to the Development Commissioner. Any unit set up through FDI shall have to follow the provisions of Indian Companies Act.

Q11. What is the approval procedure for setting up unit under SEZ scheme?

Ans. The proposal shall be submitted to the concerned State Government. The State government shall have to submit the proposal within 45 days to the Board of Approval along with its recommendations. The Board of Approval shall consist of 19 members from various departments.

Q12. What are the salient features of Special Economic Zone scheme?

Ans. Following are the features of Special Economic Zone rule:-

  • Simplified procedure for setting up units and conducting business in SEZ.
  • Single window clearance for setting up a unit in SEZ.
  • Simplified compliance procedure and documentation.

Q13. What are the facilities available to SEZ units?

Ans. Following are the facilities available to SEZ units:-

  • Duty free export of goods for the maintenance of SEZs
  • Exemption from Central Sales Tax act.
  • 100% tax exemption from income on SEZ units
  • Exemption from Drug import restrictions under the Drug and Cosmetic rules.

Q14. Does Special Economic Zone enjoy immunity from labour laws?

Ans. No, normal labour laws are applicable on Special Economic Zone enforced by the State governments.

Q15. Who keeps a check on the functioning of Unit in SEZ?

Ans. The functioning of unit in SEZ is monitored by Unit Approval Committee consisting of Development Commissioner, Custom and State Govt. representatives.

Q16. Is there any need of license for import?

Ans. No, there is no need of license for import.

Q17. What are the main objectives of Special Economic Zones Act?

Ans. The main objectives of Special Economic Zones Act are:-

  • Generation of additional economic activity
  • Promotion of exports of goods and services
  • Promotion of investment
  • More number of employment oppurtunities
  • Promotion of infrastructural facilities

Q18. What is the role of Development Commissioner?

Ans. The Development Commissioner is appointed to resolve the problems, if any, faced by    the SEZ unit or developers.

Q19. What are the criteria regarding External Commercial Borrowing?

Ans. External commercial borrowing is allowed upto $500 million a year with no restrictions.


[1] Section 3 of Special Economic Zones Act, 2005.

[2] Section 15 of Special Economic Zones Act, 2005.

[3] Section 8 of Special Economic Zones Act, 2005.

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