SEZ(Special Economic

Zone)
Act, 2005

12-12-2011

The SEZ Act

2005

The Special Economic Zones Act, 2005,

was passed by Parliament in May, 2005
which received Presidential assent on
the 23rd of June, 2005.
The draft SEZ Rules were widely
discussed and put on the website of the
Department of Commerce, offering
suggestions/comments.
Around 800 suggestions were received
on the draft rules. After extensive
consultations, the SEZ Act, 2005,
supported by SEZ Rules, came into effect

Fundamentals

of SEZs

SEZs (special economic zones) are fundamentally

different from the traditional free zones.
They are much larger in size; offer broader range of
activities such as
a single-window management,
streamlined procedures,
duty-free privileges,
also access to the domestic market on a dutypaid basis.
Whether the enclave is termed an EPZ, FTZ
or SEZ, the cardinal factors are

appropriate infrastructure and transport facilities,

low factor cost,
flexible labour laws,
convertibility of currency,
stable legal and administrative regime, and
a commitment to the canons of an open economy

Main objectives of the SEZ Act

Generation of additional economic activity;
Promotion of exports of goods and services;
Promotion of investment from domestic & foreign
sources;
Creation of employment opportunities;
Development of infrastructure facilities

SEZ Act, 2005

Passed

by Parliament in May 2005

Received Presidential assent on 23rd
June 05
Came into effect on 10th Feb 06
supported by the SEZ Rules

Export Performances
Exports from the functioning SEZs during the last
Seven years are as under:
Year

2003-2004
2004-2005
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010

Value (Rs. Crore) Growth

Rate
( over previous
year )
13,854
39%
18,314
32%
22,840
25%
34,615
52%
66,638
93%
99,689
50%
2,20,711.39
121.40%

Tax Incentives
Direct

Tax Benefit to Developers

U/s 80-IAB
100% tax holiday for 10 consecutive years out
of block of 15 years
Profit & gains derived from business of
developing SEZ notified on or after 1st April
2005
Transferee Developer can also claim deduction
for balance period of 10 years on Operation &
Maintenance income
Minimum Alternative Tax provisions not
applicable
Exemption from Dividend Distribution Tax

Direct Tax Benefits to Units - 10AA

100% of profits and gains derived from
the export for five Consecutive Years
from which business commences.
50% of for further five A.Y. and
50% of the profits ploughed back for
the next five A.Y.
Minimum Alternative Tax provisions not
applicable
Capital gain tax exemption on
relocation to SEZ
TDS
No deduction of tax at source by
OBU on interest on deposits /
borrowings from nonresident or

Indirect Tax
Exemption from payment of Import
duty
Exemption from payment of Excise
duty
Exemption from payment of CST and
VAT on purchase from DTA
Exemption from Service tax

SEZ Act, 2005

A

Single Window SEZ approval

mechanism has been provided
through a 19 member interministerial SEZ Board of Approval
(BoA).
The applications duly recommended
by
the
respective
State
Governments are considered by this
BoA periodically.

Section 7 of SEZ Act,

Exemption from taxes, duties or cess
2005
Any goods or services exported out of, or
imported into, or procured from the Domestic
Tariff Area by, (i) a Unit in a Special Economic Zone; or
(ii) a Developer;
shall, subject to such terms, conditions and
limitations, as may be prescribed, be exempt
from the payment of taxes, duties or cess under
all enactments specified in the First Schedule

Contd.

The Zone Administrator

Development Commissioner
Sec.11

Development Commissioner

Central Govt. may appoint

Development Commissioner [DC]
Assistants to DC
Sec.12

Functions of Development
Commissioner
Guiding the entrepreneur to establish SEZ;
Taking suitable steps to promote exports;
Ensuring proper co-ordination with the Central Govt. and
State Govt.;
Monitoring the performance of the Developer and the
units in SEZ; etc.

Schedules to the SEZ Act, 2005

THE FIRST SCHEDULE (Enactments)
1. The Agricultural Produce Cess Act, 1940 (27 of 1940).
2. The Coffee Act, 1942 (7 of 1942).
3. The Mica Mines Labour Welfare Fund Act, 1946 (22 of 1946).
4. The Rubber Act, 1947 (24 of 1947).
5. The Tea Act, 1953 (29 of 1953).
6. The Salt Cess Act, 1953 (49 of 1953).
7.The Medicinal and Toilet Preparations (Excise Duties) Act, 1955
(16 of 1955).
8.The Additional Duties of Excise (Goods of Special Importance) Act,
1957 (58 of 1957).
9. The Sugar (Regulation of Production) Act, 1961 (55 of 1961).
10.The Textiles Committee Act, 1963 (41 of 1963).
11.The Produce Cess Act, 1966 (15 of 1966).
12.The Marine Products Export Development Authority Act, 1972
(13 of 1972).
Contd.

13.The Coal Mines (Conservation and Development Act, 1974

(28 of 1974).
14.The Oil Industry (Development) Act, 1974 (47 of 1974).
15.The Tobacco Cess Act, 1975 (26 of 1975).
16.The Additional Duties of Excise (Textile and Textile
Articles) Act, 1978 (40 of 1978).
17.The Sugar Cess Act, 1982 (3 of 1982).
18.The Jute Manufactures Cess Act, 1983 (28 of 1983).
19.The Agricultural and Processed Food Products Export Cess
Act, 1985 (3 of 1986).
20.The Spices Cess Act, 1986 (11 of 1986).
21.The Research and Development Cess Act, 1986 (32 of
1986).

The Second Schedule:

the Income Tax Act, 1961,

Incorporates modification to

as applicable to SEZs.

The Third Schedule: Incorporates amendments to

Insurance act, 1938, Banking Regulations Act, 1949 and
Indian Stamp Act, 1899

It consists of 8 chapters, 58 sections and 3 schedules

The Special Economic Zones Act 2005 :

Procedure for making proposal to establish SEZ( Sec 3)

Establishment of SEZ with the approval from Board of
Approvals(Sec 4)
Notifying an area as SEZ by Central Government ( Sec 5)
Approval by Board of Approval for establishment of SEZ
( Sec 8 to 10)
Development Commissioner as administrative Authority for
the SEZ

( Sec 11 and 12)

Approval Committee to approve setting up of an unit in

SEZ( Sec 13 and 14)
Single window clearance by Approval Committee for setting
up unit in SEZ, setting up an OBU and setting up an IFSC.
( Sec 15 to 20)

Special civil courts and criminal courts to try notified

offences and appeal to High Court ( Sec 23 and 24)
Special Fiscal provisions for special economic zones(Sec
26 to 30)
Establishment of SEZ Authority( Sec 31 to 41)
Reference of dispute to arbitration( Sec 42 and 43)
Exemptions and relaxations from provisions of some
Central Acts

( Sec 49 and 54)

Power of the Central Government to make rules and to

remove difficulties( Sec 55 and 56)

Rules, 2006
As notified in the Gazette of India, Extraordinary No. GSR 54
(E), dated 10.2.2006. The Rules contain 8 chapters, 77 rules,
11 forms - A to K
The Special Economic Zones Rules, 2006:
Simplification of procedures for development, operation,
and maintenance of the

Special Economic Zones and for

setting up and conducting business in SEZs;

Single window clearance for setting up of an SEZ;
Single window clearance for setting up a unit in a Special
Economic Zone;
Single Window clearance on matters relating to Central as
well as State Governments;
Simplified compliance procedures and documentation with
an emphasis on self-certification; and

Major Issues
Land

Acquisition
Role of State Govt. in Land Acquisition
Compensation Packages to land owners
Rehabilitation packages for displaced farmers
State Govt.s commitment to create
infrastructure
Time frame for operationalisation
Control over SEZs
Amendments to Laws and Rules

How to evaluate whether one should set

up SEZ / SEZ Unit ?

SEZ Developer
Viable

commercial
proposition
Active support of State
Govt.
Proximity to Port
Financial soundness
Capacity to attract FDI
Generation of
employment
Availability of skilled
labour in the nearby
area and social
infrastructure

SEZ Unit

Commercial

viability
Selection of a right
SEZ
Location,
Area,
Facilities,
Benefits,
State policies,
Infrastructure,
etc.

Flowchart for Establishment of SEZ

SEZ can be
formed in
three ways

By Applying to
State Govt

With in 45 days
State Govt forward the
Proposal to Board of
Approval

By applying to Board of
Approval

Central Govt may sue-motto

set up & notify SEZ

with in Six months

Obtain the
concurrence of
State Govt

Board of Approval approves the

proposal

Central Government shall issue letter of

Approval to developer
Developer shall furnish to Central Govt
information about area

Central Govt will notify the

area as SEZ

After consulting the State

Government and identifying
the area

Flowchart For Setting Up A

Unit
Application in Form F (5 copies) to
Development Commissioner with a copy to
developer along with Project report

If Proposal relates
to Foreign
Collaborations and
FDI in SEZ or
granting license to
industrial
undertaking

yes

No

Development
Commissioner shall
scrutinize proposal and
place before approval
committee

With in 15 days

Approval Committee approve the

proposal

Development Commissioner
shall place the proposal
before Board

With in 45 days
Boards shall approve the
proposal

Development Commissioner will issue a letter of approval in Form G for

setting up the unit