Article by Dezan Shira & Associates, courtesy of India Briefing
13.06.2025
Businesses can consider setting up or doing business with entities in India’s Special Economic Zones to take advantage of favorable tax incentives, simplified customs procedures, and a conducive environment for manufacturing and trade.
Special economic zones (SEZs) in India are areas that offer incentives to resident businesses. SEZs typically offer competitive infrastructure, duty free exports, tax incentives, and other measures designed to make it easier to conduct business. Accordingly, SEZs in India are a popular investment destination for many multinationals, particularly exporters.
Currently, India has 276 operational SEZs with total employment of 3.19 million people as of March 31, 2024. Goods exports from Indian SEZs reached US$143.34 billion till January 31, 2025.
In December 2022, it was reported that the Kandla SEZ in Gujarat alone accounted for US$38 billion in export value. According to a Statista report, investments into these SEZs grew to INR 656 billion (US$7.87 billion).
While India’s SEZs are similar to those found in other parts of Asia, business leaders that are considering setting up in a SEZ should seek to understand how SEZs work in India. Each SEZ is unique.
Foreign companies are advised to conduct market entry studies that compare sites, resources, tax incentives, and costs before making ground site visits.
A designated duty-free enclave is considered as a territory outside the customs jurisdiction of India for authorized operations within the Special Economic Zone (SEZ). No import license is necessary, and both manufacturing and service activities are permitted. Units within the SEZ must demonstrate Positive Net Foreign Exchange over a cumulative period of five years from the start of production. Domestic sales are subject to full customs duty and adhere to the current import policy. SEZ units have the liberty to engage in subcontracting. Routine inspections of export/import cargo by customs authorities are not required. SEZ Developers/Co-Developers and Units are entitled to direct and indirect tax benefits as stipulated in the SEZs Act of 2005.
Key amendments to SEZ rules to facilitate semiconductor manufacturing in India
On June 9, 2025, India announced a series of regulatory amendments aimed at promoting SEZs focused on semiconductor and electronic component manufacturing. These changes, introduced under the SEZ Rules, 2006, are expected to reduce entry barriers, enhance operational flexibility, and expand market access for high-tech manufacturing units.
One of the major revisions is the amendment to Rule 5 of SEZ Rules, 2006, which reduces the minimum land requirement for SEZs dedicated exclusively to semiconductors or electronic components from 50 hectares to 10 hectares. This relaxation is intended to make it easier for investors to establish such facilities.
Additionally, Rule 18 has been amended to allow these SEZ units to sell their products in the domestic market, subject to payment of applicable duties. This marks a departure from the traditional export-only model for the manufacturers.
Further, an amendment to Rule 7 empowers the SEZ Board of Approval to waive the requirement for land to be encumbrance-free in specific cases. This provision applies when the land is mortgaged or leased to central or state governments or their authorized agencies, offering greater flexibility in land acquisition and development.
Approval granted for two new high-tech SEZs
Following the notification of these amendments, the SEZ Board of Approval sanctioned two critical proposals:
- Micron Semiconductor Technology India will set up an SEZ in Sanand, Gujarat, with an estimated investment of INR 130 billion (US$1.5 billion).
- Hubballi Durable Goods Cluster Private Ltd (part of the Aequs Group) received approval to establish an SEZ in Dharwad, Karnataka, involving an investment of INR 1 billion (US$11.61 million).
India’s Union Ministry of Commerce and Industry stated that these regulatory changes are designed to support investments in sectors that are not only capital-intensive but also dependent on imports and characterized by long gestation periods.
The development of SEZs in India
The Indian government had long used export processing zones (EPZs) to promote exports. In fact, Asia’s first EPZ was established in 1965 at Kandla, Gujarat state. While these EPZs had a similar structure to SEZs, the government began to establish SEZs in 2000 under the Foreign Trade Policy. This approach aimed to address issues arising from numerous regulatory controls, inadequate infrastructure, an unreliable fiscal system, and to allure higher foreign investments from international businesses and MNCs to India.
Notable SEZs in India
The Special Economic Zone Act, 2005 amended India’s SEZ policy. Many EPZs have converted to SEZs, with notable zones in Noida (Uttar Pradesh state), Falta (West Bengal state), Visakhapatnam (Andhra Pradesh state), Chennai (Tamil Nadu state), Cochin (Kerala state), Santa Cruz (Maharashtra state), Indore (Madhya Pradesh), as well as Kandla and Surat (Gujarat).
Since the Act’s promulgation, the Indian government has also accepted proposals for additional, far smaller SEZs, which must be proposed by developers to the Indian Board of Approval. The SEZ Rules, 2006 lay down the complete procedure to develop a proposed SEZ or establish a unit in an SEZ.
Consequently, the SEZ category encompasses various multiple zone types, such as free trade zones (FTZs), EPZs, industrial estates (IEs), free ports, free trade warehousing zones (FTWZz), and urban enterprise zones, among others.
