Term special economic zone (SEZ)under Indian Tax

Meaning of special economic zone (SEZ) under Indian Tax


The details about special economic zone (SEZ) are explained here. 

Special Economic Zone (SEZ)

A special economic zone (SEZ) is a dedicated zone wherein businesses enjoy simpler tax and legal compliance. SEZs are located within a country’s national borders, however, they are treated as a foreign territory from taxability perspective.

The special economic zone (SEZ) aims include increased trade, increased investment, job creation and effective administration. To encourage businesses to set up in the zone, financial policies are introduced. These policies typically regard investing, taxation, trading, quotas, customs and labour regulations. Additionally, companies may be offered tax holidays, where upon establishing in a zone they are granted a period of lower taxation.

The creation of special economic zones by the host country may be motivated by the desire to attract foreign direct investment (FDI).

The benefits a company gains by being in a special economic zone may mean it can produce and trade goods at a lower price, aimed at being globally competitive.

In some countries the zones have been criticized for being little more than labor camps, with workers denied fundamental labor rights.

Some of their key objective includes:

•              Increase in Foreign Trade by promotion of exports of goods and services

•              Increased Foreign Investment

•              Domestic Job creation and;

•              Effective Administration and Compliance Procedures.

•              Better Infrastructure Facilities


To promote entrepreneurs to set up units in these Economic Zone, various attractive financial policies have been established. These policies include promotional offers and simplicity in investing, taxation, trading, quotas, customs and labor regulations. Moreover, units set up in these zones are offered special tax holidays.

Impact of GST on SEZ

The term special economic zone can further include:

•              Free trade zones (FTZ)

•              Export processing zones (EPZ)

•              Free zones/ Free economic zones (FZ/ FEZ)

•              Industrial parks/ industrial estates (IE)

•              Free ports

•              Bonded logistics parks (BLP)

•              Urban enterprise zones

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