A special economic zone (SEZ) is an area within a country that is subject to different economic rules and regulations than other regions within the same country.
Firstly, the primary objective of this SEZ policy was to enhance foreign investment in India and to provide a globally competitive and conducive environment for exports. Later, legislation was duly passed which allowed SEZs to provide tax breaks to the foreign investors. However, after many years, it was felt that these policies did not quite meet their objectives, owing to certain drawbacks and essential omissions.
Special Economic Zone Act 2005 looked to discard these drawbacks and wanted to provide a stable & long-term policy framework to businesses, with minimum rules and regulation. This Act covers all regulatory & legal aspects related to the development of SEZs and their operating units.
As per the SEZ Act of 2005, a Special Economic Zone (SEZ) in India is a specially demarcated and duty-free enclave. Likewise, an SEZ will be deemed as a foreign territory for matters related to trade tariffs, duties, & operations. The economic laws in SEZ are different from the prevailing laws in other parts of India.
Why are Special Economic Zones important?
Special Economic Zone (SEZ) in India is a specially demarcated and duty-free enclave. Likewise, an SEZ will be deemed as a foreign territory for matters related to trade tariffs, duties, & operations.
Special Economic Zone Act of 2005 governs all the regulatory & legal aspects related to the development of SEZs and their operating units.
The Major Incentives & Facilities Available to SEZ: –
- Exemption from customs or excise duties of special economic zone development for authorized operations approved by the BOA.
- Exemption from MAT (Minimum Alternate) – Section 115 JB of the Income Tax Act. (withdrawn with effect from 1 April 2012)
- Exemption from Dividend Distribution Tax (DDT) under Section 115O of the Income Tax Act. (withdrawn with effect from 1 June 2011)
- Exemption from CST (Central Sales Tax).
- Exemption from Service Tax (Section 7, section 26, and Second Schedule of the SEZ Act).
What are the Advantages of Registering a Company in SEZ (Special Economic Zone)?
Some of the benefits when you are registering a company in Special Economic Zones in India are as follows:
- According to the Section 10 AA of the Income Tax Act, companies registration in an SEZ gives a corporate tax holiday on export income for 15 years- 100 % for the first five years, 50% for the next five years and 50% of the reinvested profit for the remaining five years.
- Such companies offer exemptions from Service Tax and Central Sales Tax. State Sales tax exemption may also offer from Concerned State Governments
- An exemption provides from customs duty for importing raw materials, capital goods, consumable spares etc.
- An exemption is provided from Central Excise Duty to procure raw materials, consumable spares, and capital goods, etc.
- Single-window clearance will extend to these companies for necessary approvals from the Central and State Governments.