SEZ Benefits for Indian Exporters: Tax, Duty, GST and the DTA Comparison

Position as on 5 October 2026.

Short answer. A Special Economic Zone (SEZ) unit in India imports and buys its inputs free of customs duty and GST, exports under simplified customs procedures, and can now sell part of its output in India at a concessional duty. What it no longer gets, if it starts operations today, is the income tax holiday. The Section 10AA deduction applies only to units that began operations on or before 31 March 2020, or by 30 September 2020 where approval was in hand by 31 March 2020. For a new unit, the SEZ case rests on duty and GST savings, working capital and simpler customs, not on tax-free profits.

That shift is the single most misunderstood point about SEZ benefits in 2026. Many older guides still sell the 15 year tax holiday as the headline. This guide sets out what an SEZ unit actually gets today, how it compares with a normal unit in the Domestic Tariff Area (DTA), and how the approval works.

What Is an SEZ

A Special Economic Zone is a notified, duty-free enclave inside India that is treated as foreign territory for trade operations, duties and tariffs. It is governed by the Special Economic Zones Act, 2005 and the Special Economic Zones Rules, 2006, administered by the Department of Commerce.

Three roles matter:

• Developer. Builds and runs the zone. Approved by the Board of Approval in the Department of Commerce.
• Unit. The business that sets up inside the zone to manufacture, trade or provide services. Approved by the Unit Approval Committee, chaired by the zone’s Development Commissioner.
• Development Commissioner. The government officer in charge of each zone. Approvals, monitoring and most day-to-day permissions run through this office, with the SEZ Online system as the filing platform.

Because the zone is outside India’s customs territory for these purposes, goods coming into the SEZ from India count as exports, and goods going from the SEZ into India count as imports. Every SEZ benefit and every SEZ obligation follows from that one rule.

SEZ Benefits for Indian Exporters

1. Duty-free imports for authorised operations

Capital goods, raw materials, components and consumables imported for authorised operations come in without Basic Customs Duty or Integrated GST. In a DTA unit the same relief needs a separate scheme such as Advance Authorisation or EPCG, each with its own export obligation and paperwork.

2. GST-free domestic procurement

Supplies to an SEZ unit are zero-rated under Section 16 of the IGST Act, 2017. Your Indian suppliers either supply under a Letter of Undertaking without tax or charge IGST and claim a refund. Either way, GST does not sit in your costing and your cash is not locked in input credit. See our guide to GST compliance for exporters for how LUT and refunds work on the supplier side.

3. Export incentives still apply

SEZ units can claim RoDTEP on eligible lines under Appendix 4RE, the schedule for Advance Authorisation, EOU and SEZ exports. RoDTEP is notified up to 31 December 2026 under DGFT Notification No. 41/2026-27. Read the RoDTEP scheme guide for rates and the claim process.

4. Concessional duty on sales into India, from April 2026

Normally, goods an SEZ unit sells into India pay full customs duty, as if imported. Customs Notification No. 11/2026-Customs dated 31 March 2026, following the Union Budget 2026 announcement, allows a conditional concessional rate on SEZ to DTA clearances from 1 April 2026 to 31 March 2027. Reported conditions include:

• Only units that commenced production on or before 31 March 2025
• A cap of 30 percent of the unit’s highest annual FOB export value in the three preceding financial years
• A certificate from the Development Commissioner, and listed exclusions such as petroleum and gems and jewellery

Check your product and unit against the notification text before you price a domestic order on this basis. It is a one-year window, not a permanent rule.

5. Simpler customs and single-window approvals

Customs procedures inside the zone are largely self-certified, and most permissions, from approvals to annual returns, run through one Development Commissioner’s office and SEZ Online. For a high-volume exporter that saves time on every consignment.

6. Foreign investment and state support

Foreign direct investment in SEZ manufacturing generally follows the automatic route, subject to sectoral rules in the FDI policy. Many states add their own concessions, such as stamp duty or electricity duty relief, under their state SEZ policies. These vary by state, so confirm them for your location.

7. The income tax holiday, only for older units

Section 10AA of the Income Tax Act, 1961 gives 100 percent exemption on export profits for the first 5 years, 50 percent for the next 5, and up to 50 percent of profits ploughed back into a reserve for the 5 after that. It applies only to units that started operations on or before 31 March 2020, extended to 30 September 2020 for units approved by 31 March 2020. Units already inside that 15 year window keep it. New units do not get it.

SEZ vs DTA: Tax Comparison

Point	SEZ unit	DTA exporter
Customs duty on imported inputs and capital goods	Exempt for authorised operations	Payable, unless covered by Advance Authorisation, EPCG or refunded through Duty Drawback
GST on domestic purchases	Zero-rated supply to the SEZ	Paid, then recovered through input tax credit or refund
GST on exports	Zero-rated	Zero-rated, under LUT or with IGST refund
Income tax holiday (Section 10AA)	Only for units that began by 31 March 2020 (or 30 September 2020 with prior approval)	Not available
Corporate tax for a new unit	Normal rates, including the optional concessional regime	Normal rates, including the optional concessional regime
Minimum Alternate Tax	Applies to SEZ units under the old regime	Applies under the old regime
RoDTEP	Appendix 4RE rates	Appendix 4R rates
Duty Drawback	Not relevant on duty-free inputs	Available on duty-paid inputs
Selling in India	Treated as an import. Full duty, or the conditional 2026-27 concession within the 30 percent cap	No restriction
Key obligation	Positive Net Foreign Exchange over 5 years, bond-cum-legal undertaking, annual performance report	Scheme-specific export obligations only where a scheme is used

The practical test: if most of your output is exported and your inputs carry heavy customs duty or GST, an SEZ can improve cash flow. Our overview of export incentives in India sets out every scheme a unit can stack. If you sell a large share in India, or your inputs are cheap and domestic, a DTA unit using Advance Authorisation, Duty Drawback and RoDTEP is often simpler and just as profitable.

Eligibility and Approval Process

Who can set up an SEZ unit

Any person, including a proprietor, partnership, LLP or company, Indian or foreign-owned, can apply to set up a unit for manufacturing, trading or services, provided the activity is permitted in that zone and the unit can stay Net Foreign Exchange positive. Some zones are sector-specific, so pick a zone that accepts your activity.

Step by step

1. Choose the zone and space. Shortlist operational SEZs that permit your sector and get a space offer from the developer.
2. Build the project report. Activity, investment, five-year export and import projections, and the Net Foreign Exchange calculation.
3. Apply on SEZ Online. File the unit application with the project report and supporting documents to the Development Commissioner of that zone.
4. Unit Approval Committee. The committee, chaired by the Development Commissioner, considers the proposal. You may be asked to present.
5. Letter of Approval. On approval you receive a Letter of Approval, which sets the authorised operations and a time limit to start, generally one year and extendable on request.
6. Bond-cum-legal undertaking. Execute it with the Development Commissioner, covering the duties forgone on goods you bring in.
7. Lease and registrations. Sign the lease with the developer, and register on ICEGATE and with GST at the SEZ address, then complete your AD Code registration. You need an Importer Exporter Code before you trade.
8. Commence operations. Report the start of production or services to the Development Commissioner. The five-year Net Foreign Exchange block starts from here.

Documents Required

• Unit application on SEZ Online with the project report
• PAN of the entity and its promoters, partners or directors
• Certificate of incorporation, partnership deed or LLP agreement, and board resolution or authority letter
• Memorandum and Articles of Association, for a company
• Importer Exporter Code, or proof of application
• Space allotment or offer letter from the developer
• Five-year projections of exports, imports and Net Foreign Exchange
• Details and value of capital goods and raw materials planned for import and domestic purchase
• Foreign investment details, where applicable
• Pollution control category and any sector licence the activity needs
• Class 3 digital signature certificate for online filing

The Development Commissioner’s office can ask for more, depending on the zone and the activity. Expect questions on the projections in particular.

Common Mistakes

1. Planning on the tax holiday. Section 10AA is closed to new units. A business plan that assumes tax-free profits for five years is wrong from day one.
2. Underestimating sales into India. Every domestic sale is an import with duty. The 2026-27 concession is limited to older units, capped at 30 percent and time bound.
3. Weak Net Foreign Exchange planning. NFE is cumulative over five years. Heavy imported capital goods in year one, with slow exports, can push you negative and invite action.
4. Treating the bond lightly. The bond-cum-legal undertaking covers the duty forgone. Goods diverted or used outside authorised operations can lead to duty demands and penalties.
5. Using the wrong RoDTEP schedule. SEZ exports claim under Appendix 4RE, not Appendix 4R, and the 4RE rate is usually lower.
6. Missing the annual performance report. The yearly report to the Development Commissioner is how NFE is monitored. Late or wrong reports lead to notices.
7. Choosing the zone before the model. Compare SEZ, Export Oriented Unit and a DTA unit with Advance Authorisation before you sign a lease, and check how each one’s exports will clear on the shipping bill.

FAQ

What are the main benefits of an SEZ in India?

Duty-free imports and GST-free domestic purchases for authorised operations, simpler customs, single-window approvals, RoDTEP under Appendix 4RE, and, from April 2026, a conditional concessional duty on part of the sales into India for eligible units.

Do new SEZ units get income tax exemption in 2026?

No. The Section 10AA deduction applies only to units that began operations on or before 31 March 2020, or by 30 September 2020 where approval was received by 31 March 2020. New units pay normal corporate tax.

Is MAT applicable to SEZ units?

Yes, under the old tax regime Minimum Alternate Tax applies to SEZ units. Companies that opt for the concessional corporate tax regime are outside MAT but cannot claim Section 10AA.

Can an SEZ unit sell its goods in India?

Yes, but each sale is treated as an import into India and pays customs duty. For 1 April 2026 to 31 March 2027, Notification No. 11/2026-Customs allows a concessional rate for units that started production by 31 March 2025, capped at 30 percent of their highest annual FOB exports in the previous three years.

What is Net Foreign Exchange for an SEZ unit?

It is the value of exports minus the value of imported inputs, capital goods and certain foreign exchange outflows, counted cumulatively over five years from the start of operations. An SEZ unit must keep it positive.

Are supplies to an SEZ unit subject to GST?

No. Supplies to an SEZ unit or developer for authorised operations are zero-rated under Section 16 of the IGST Act. The supplier uses a Letter of Undertaking or claims a refund of the IGST paid.

Can SEZ units claim RoDTEP?

Yes, on eligible lines listed in Appendix 4RE. RoDTEP is notified up to 31 December 2026.

How long does SEZ unit approval take?

It depends on the zone and how complete the application is. The Unit Approval Committee meets periodically, so a well-prepared proposal is usually taken up in its next meeting. Incomplete projections are the most common reason for delay.

What is the difference between an SEZ and an EOU?

An SEZ unit sits inside a notified zone treated as outside customs territory. An Export Oriented Unit can be located anywhere and works under customs bonding. Both import duty-free for exports, but the approvals, obligations and domestic sale rules differ.

Thinking about an SEZ unit?

Rasp International has advised Indian exporters on DGFT, customs and export incentives for over 20 years. Before you commit to a zone, we model your numbers three ways, SEZ, EOU and a DTA unit with Advance Authorisation and RoDTEP, so the choice rests on cash, not on a brochure. Once you decide, we prepare the application, projections and documents and see them through to the Letter of Approval. Talk to our DGFT consultants.

Book a free consultation or WhatsApp +91 8218043048.

Reference	What it establishes
Special Economic Zones Act, 2005 and SEZ Rules, 2006 (sezindia.gov.in)	Legal framework, approvals, Net Foreign Exchange and unit obligations
Section 10AA, Income Tax Act, 1961 and the Taxation and Other Laws (Relaxation and Amendment) Act, 2020	Tax holiday only for units that began by 31 March 2020, or 30 September 2020 with prior approval
Section 16, IGST Act, 2017	Supplies to SEZ units and developers are zero-rated
Customs Notification No. 11/2026-Customs dated 31 March 2026	Conditional concessional duty on SEZ to DTA clearances, 1 April 2026 to 31 March 2027
DGFT Notification No. 41/2026-27 dated 30 September 2026	RoDTEP, including Appendix 4RE for SEZ exports, notified to 31 December 2026

This is general guidance. Confirm unit-specific tax positions with your tax adviser.