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CA SANDEEP KHANDELWAL
Special Economic Zones (SEZs) in India are designated areas with special economic regulations that are intended to encourage foreign investment, boost exports, and promote economic growth. The Indian government established SEZs as part of its liberalization policy in the early 2000s.
SEZs offer various incentives such as exemption from taxes and duties on import and export of goods, simplified procedures for doing business, and single-window clearance for setting up and operating businesses. SEZs can be established by both private and public sector entities, and can be set up for various sectors such as IT, manufacturing, pharmaceuticals, textiles, and more. SEZs have been successful in attracting foreign investment and promoting exports in India. They have also created employment opportunities, especially in the manufacturing and IT sectors. In recent years, the Indian government has introduced reforms to make SEZs more investor-friendly and to address some of the challenges they face. Overall, SEZs remain an important part of India’s economic policy, and the government continues to encourage their development as a means of promoting economic growth and development.
To set up an SEZ, an entity needs to acquire land, apply for formal approval from the government, and fulfill certain requirements such as minimum land area, employment generation, and capital investment. Once an SEZ is established, it is governed by the Special Economic Zones Act, 2005, and various rules and regulations issued by the government from time to time.
Advantage / Disadvantage:
There are several advantages and disadvantages to units which are set-up in SEZs.
- Tax Benefits: SEZs offer several tax benefits to units set up within their boundaries. These include exemptions from customs duties, central excise duties, and other taxes.
- Infrastructure Support: SEZs typically have excellent infrastructure in place, including high-quality roads, power, water supply, and telecommunications. This can save a lot of time and money for businesses, as they do not have to invest in setting up their own infrastructure.
- Simplified Procedures: SEZs often have simplified procedures for setting up businesses, obtaining permits and approvals, and complying with regulations. This can save a lot of time and money for businesses.
- Access to Markets: SEZs provide access to a large market, as they are designed to attract foreign investors. Businesses located in SEZs can benefit from access to these markets.
- Separate custom area (duty free zone): These unique areas are called Special Economic Zones (SEZ) in India that are treated as a duty-free foreign territory for all trading activities. Foreign investors and business owners who set up there are provided with various fiscal and non-fiscal incentives and support.
- Limited Domestic Market: While SEZs provide access to a large international market, they may have limited access to the domestic market. This may be a disadvantage for businesses that rely on the domestic market for their revenue.
- Higher Costs: While SEZs offer several benefits, the cost of setting up and operating a business in these zones can be higher than setting up a business outside of these zones.
- Limited Flexibility: Businesses located in SEZs may have limited flexibility in terms of their operations, as they have to comply with the rules and regulations set by the SEZ authority.
- Risk of Dependence: Businesses located in SEZs may become dependent on the benefits offered by the SEZs, such as tax exemptions and infrastructure support. This can be a risk if these benefits are reduced or withdrawn in the future.
- In nut-shell, setting up units in SEZs can be advantageous for businesses looking to expand internationally and benefit from tax incentives and infrastructure support. However, it is important to carefully evaluate the costs and limitations of operating in these zones before making a decision.
Setting up Units in Special Economic Zones (SEZs) in India:
The procedure for setting up units in Special Economic Zones (SEZs) in India involves the following steps:
Identify the SEZ: The first step is to identify the SEZ in which the unit will be set up. The applicant needs to choose a SEZ that is suitable for their business activity and that has available land or built-up space.
Submit an application: The next step is to submit an application to the developer of the SEZ. The application should include details such as the proposed business activity, the area of land or built-up space required, and the expected investment.
Obtain a Letter of Approval: Once the application is reviewed by the developer, they will issue a Letter of Approval (LOA) if the proposal is found to be eligible. The LOA will be valid for three years, during which time the applicant must obtain all necessary approvals and start construction.
Obtain necessary approvals: The applicant must obtain all necessary approvals and clearances from various government departments, such as the Ministry of Environment and Forests, the Department of Industrial Policy and Promotion, and the Department of Commerce.
Execute lease agreement: Once all necessary approvals are obtained, the applicant must execute a lease agreement with the developer of the SEZ. The lease agreement will specify the terms and conditions of the lease, such as the lease period, rent, and other charges.
Construction and setting up of the unit: After executing the lease agreement, the applicant can start construction and setting up of the unit.
Obtain other clearances: The applicant must obtain other clearances such as those related to customs, excise, and other taxes.
Commence operations: Once the construction is completed, the unit can commence operations.
In summary, setting up a unit in an SEZ in India involves obtaining approvals from multiple government departments, executing a lease agreement with the developer of the SEZ, and obtaining necessary clearances before starting construction and operations.
Special Economic zone are holding special place in Domestic Tarif Area. If you are looking to avail all the special benefits available in SEZs then you must approach us for getting assistance in setting-up your peculiar unit in the most suitable SEZs. We can assist you in your endeavour to set-up unit in appropriate SEZ, if you are engaged in:
- Service provider
- Manufacturer and service provider
- As a free trade and warehousing sector
How Can MNRS Help?
- Advisory on most suitable SEZ for the product/service of the Client
- Preparation of proposal documents for registration
- Application for Import Export Code (IEC) to Director General of Foreign Trade (DGFT)
- Obtaining the letter of permission/Approval (LOP/A) /renewal of LOP/A
- Permission for change in location of unit/additional capacity
- Assistance in exit procedures, wherever desirable
- Filing of GST return with SEZ
- Formulating strategies for Indirect taxation benefits
- Undertaking of business operation comprehensive studies of these
- Innovative tax planning
- Filing SEZ Monthly report and Performance report
- Filing of Softex form