Laws Relating to Special Economic Zones Act, 2005

Laws Relating to Special Economic Zones: Designated regions known as Special Economic Zones (SEZs) provide advantageous laws and regulations for enterprises to promote economic growth and development. The government proposes various rules regarding the setup and facilities for special economic zones in different parts of the country.

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Special Economic Zones Act, 2005

• Facilitate more economic activity.
• Promote export operations for goods and services.
• Create more employment opportunities.
• Boost investments from both international and domestic sectors.
• Build infrastructure facilities.

Facilities and Incentives for Setting up a Business in SEZ

• Duty-free import and domestic procurement of products for establishing, operating, and maintaining the business in the Special Economic Zone (SEZ).
• SEZ units are excluded from income tax on export income for the initial five years and can enjoy 50% tax concessions for the next five years. This exemption for SEZ units will take effect on April 1, 2020.
• Exemption from excise or customs taxes for creating SEZs for permitted operations approved by the Board of Approval (BOA).
• Goods and Services Tax (GST) tax does not apply to Special Economic Zones (SEZs) supplies.
• The Minimum Alternate Tax (MAT) will also not apply to SEZs.
• All state and central governments offer clearances regarding SEZs through a single-point system.
• Certain SEZs are exempt from paying electricity production and sales taxes to other states.
• Companies operating in Special Economic Zones (SEZs) don't require permits for import.
• Except for a few categories, 100% foreign direct investment is permitted in the manufacturing sector operating in a SEZ.
• Several states provide customs agents to the Special Economic Zones (SEZs) to facilitate trade procedures.

Laws Relating to Special Economic Zone Approval in India

• The developer must submit the project proposal to the state government.
• The state government forwards this proposal to the Board of Advisors, which has forty-five days to convey its recommendation.
• When recommending a proposal to the BoA of a SEZ, the state government must specify whether the proposed region is reserved or an ecologically sensitive area, as determined by the relevant authorities.
• The developer or applicant may also send the proposal directly to the BoA.
• The BoA, a 19-member board constituted by the Central Government, reviews the application and decides on approval considering the merits of the project proposal.
• The Secretary of the Department of Commerce, Ministry of Commerce and Industry, chairs the Board. The other members come from a variety of departments and ministries, including the Department of Economic Affairs, the Department of Commerce, the Ministry of Science and Technology, the Ministry of Home Affairs, the Ministry of Law and Justice, the Ministry of Urban Development, and the Central Board of Excise and Customs (CBEC), the Central Board of Direct Taxes (CBDT), etc.
• After receiving approval from BoA, the central government officially declares the SEZ status of the area where units are allowed to be established following the rules applicable to SEZ.
• When the BoA accepts a proposal for establishing a special economic zone, the applicant must secure the State Government's consent within six months of the approval date.
• The Central Government will issue a Letter of Approval (LOA) to the developer with a validity of three years, during which at least one unit should start production in the SEZ.

Laws Regarding Area Requirements for Special Economic Zone

• A Multi-Product SEZ must hold an area of at least 500 hectares but at most 5000 hectares.
• If a proposal is made to establish a Special Economic Zone in any of the following states: Assam, Meghalaya, Nagaland, Arunachal Pradesh, Mizoram, Manipur, Tripura, Himachal Pradesh, Uttaranchal, Sikkim, Jammu and Kashmir, Goa, or a Union Territory, the proposed zone must cover an area of at least 100 hectares.
• At least 50% of the zone must be designated for the development of the processing area.
• Suppose the special economic zone is proposed to be established exclusively for electronics hardware and software, including information technology-enabled services. In that case, the area must be ten hectares or more, with a minimum built-up processing area of one lakh square meters to twenty-five thousand square meters, depending on the category of cities.
• The area requirement for a SEZ for making handicraft products is ten hectares or more.
• The area must be ten hectares for a special economic zone intended solely for biotechnology non-conventional energy production, including solar energy equipment and cells, or for gem and jewellery industries.