SEZ in India 2026: Setting Up an SEZ Unit as a Foreign Company

Written by CA Nandini Hasija, Krystal7 Consultants. Last updated 23 October 2026.

A foreign company sets up a unit in an SEZ in India through an Indian company or a branch office. It applies in Form F to the zone's Development Commissioner under section 15 of the Special Economic Zones Act, 2005. The Approval Committee decides within 15 days. The unit then gets a Letter of Approval in Form G and signs a bond in Form H. It must earn positive net foreign exchange over five years. New units get no income tax holiday.

This page is for foreign groups weighing an SEZ unit for manufacturing, IT services or a capability centre in India. It covers eligibility, approval, the bond, NFE, tax, GST, IT units, exit and the reforms of 2025 and 2026.

What is an SEZ in India and why do foreign companies use one?

An SEZ is a notified zone that the Special Economic Zones Act, 2005 treats as outside India's customs territory for authorised operations (section 53). Units inside import goods duty free, buy from Indian suppliers at zero rated GST and need no import licence. In return they must earn net foreign exchange.

The Act and the SEZ Rules, 2006 came into force on 10 Feb 2006 (PIB Research note, 28 Mar 2026). India had 368 notified SEZs on 28 Feb 2026. SEZs employed over 31.73 lakh people and held INR 7.86 lakh crore of investment by December 2025. SEZ exports passed INR 11.70 lakh crore in 2025-26 up to December 2025. That is 32.02 percent above the same period of 2024-25 (PIB Research note).

Foreign groups choose an SEZ for four practical reasons.

1. Duty free inputs and capital goods. Section 26 of the Act exempts imports for authorised operations from customs duty. This helps a manufacturer that imports most inputs.
2. Zero rated domestic purchases. Indian suppliers bill the unit without IGST under a Letter of Undertaking, so no tax sits in working capital.
3. One window. The Development Commissioner gives the unit approval and most customs permissions under one office.
4. Plug and play space. Developers lease built space, including IT parks, that already meets SEZ rules.

The price is the export obligation and the paperwork. Each consignment in and out goes through the zone's customs procedure. DTA sales pay duty as imports. For a business that sells mostly in India, an ordinary company in the Domestic Tariff Area is usually simpler.

Who can set up a unit in an SEZ?

Any person can apply to set up an SEZ unit under section 15(1) of the Act. A foreign company usually acts through an Indian Private Limited company that it owns. It may also open a branch office inside the SEZ under the RBI's general permission, if 100 percent FDI is allowed in the sector.

The two routes compare as follows.

Point	Indian subsidiary in the SEZ	Branch office in the SEZ
Legal form	Indian Private Limited company under the Companies Act, 2013	Extension of the foreign company
FEMA basis	FDI under the automatic or government route, with FC-GPR reporting	General permission, paragraph 2(viii) of the RBI Master Direction on branch and liaison offices
Sector condition	Sectoral FDI cap applies	Only sectors where 100% FDI is permitted
Activities	Any authorised operation in the LoA	Manufacturing and services only
Companies Act	Full company compliance	Chapter XXII (foreign company) compliance
Income tax rate	Domestic company rates, or section 200 at 22%	Foreign company rate, 35% plus surcharge and cess
Operation	Normal	Must function on a stand alone basis

Sources: RBI Master Direction on establishment of branch, liaison and project offices, paragraph 2(viii), updated as on 18 May 2021.

We usually recommend the subsidiary. It pays tax at domestic company rates and can take local funding. See our guides on FDI automatic route sectors and the branch office rules.

Investors from countries that share a land border with India need government approval for FDI under Press Note 3 (2020 Series). The SEZ route does not change that. See our note on Press Note 3.

How do you apply for an SEZ unit?

You apply in Form F to the Development Commissioner of the zone under rule 17(1) of the SEZ Rules, 2006. A copy goes to the developer. Form F is a consolidated application for the unit and other clearances. The Approval Committee meets every fortnight on a fixed day and decides within 15 days. Proposals that need the Board of Approval take up to 45 days.

The Approval Committee checks the proposal against rule 18. The main conditions are:

1. Positive net foreign exchange earning, and any value addition norm for the sector.
2. Space in the zone, shown by the developer's provisional offer.
3. A registered lease deed within six months of the Letter of Approval.
4. Environmental and pollution norms.
5. Proof of residence and three years of income tax returns or audited balance sheets for the promoter.

Form F also covers the Importer Exporter Code, water and power connections, GST registration and pollution consent where needed (rule 17). Rule 18 bars some activities, such as recycling of plastic scrap and reprocessing of used clothing.

Step	What happens	Rule	Time limit
1	Provisional space offer from the developer	18	Before filing
2	Form F filed with the Development Commissioner	17(1)	Not fixed
3	Approval Committee meeting and decision	17, 18	Within 15 days (45 days for the Board)
4	Letter of Approval in Form G issued	19	On approval
5	Lease deed registered	18	Within six months of the LoA
6	Bond cum legal undertaking in Form H accepted	22	Deemed accepted after seven working days
7	Production or service commences	19	Within one year of the LoA, extendable
8	Annual Performance Report in Form I	22	Before the end of the first quarter of the next year

Sources: SEZ Rules, 2006 (NSEZ copy) and NSEZ FAQs.

A new foreign owned company should have its PAN, bank account and IEC ready before the Approval Committee meets. See our guides on manufacturing company registration and IEC registration for a foreign owned company.

What does the Letter of Approval contain and how long is it valid?

The Letter of Approval in Form G lists the items the unit may make or the services it may provide, with ITC (HS) codes. It also states projected annual exports and net foreign exchange for the first five years. The unit must commence production within one year of the LoA. Once it commences, the LoA runs five years and is renewable five years at a time.

Rule 19 sets the validity rules in detail.

1. Before commencement. The Development Commissioner may extend the one year by up to two years for recorded reasons. A further year is possible if two thirds of the set up is done, certified by a chartered engineer. The Board of Approval may grant more.
2. Lapse. If the unit does not commence within the validity, the LoA lapses from its expiry date (rule 19(5)).
3. After commencement. The LoA is valid for five years from commencement of production or service. The Development Commissioner may extend it five years at a time.
4. Renewal. The unit applies in Form F1 two months before expiry. Rule 19(6B) lists the tests, including export performance, employment and statutory defaults.

The unit must tell the Development Commissioner its date of commencement. That date starts the five year NFE block. See the Form G format on the MEPZ site.

Any new product, service or expansion needs a change to the LoA before you start it. We see units add a service line under the existing LoA and then find the exports outside its scope at audit.

What is the bond cum legal undertaking?

The bond cum legal undertaking is the unit's promise in Form H. It covers proper use and accounting of duty free goods and positive net foreign exchange. Rule 22 of the SEZ Rules, 2006 requires it before the unit claims exemptions. The bond value generally equals the effective duty on three months' projected imports and procurements.

The Development Commissioner and the Specified Officer accept the bond jointly. A bond is deemed accepted if no communication reaches the unit within seven working days (rule 22(1)(iv)(g)). The unit also needs a registration cum membership certificate (rule 22(1)(v)).

Rule 22 also sets record keeping. The unit keeps accounts for seven years from the end of the financial year, in registers or time stamped digital form. It files an Annual Performance Report in Form I, certified by an independent chartered accountant.

Revise the bond when imports grow. A bond sized for year one projections often falls short by year three.

What is the net foreign exchange obligation?

An SEZ unit must achieve positive net foreign exchange (NFE), calculated cumulatively for five years from commencement of production. Rule 53 of the SEZ Rules, 2006 sets the formula as NFE = A − B. A is exports in free foreign exchange plus deemed exports. B is imports and domestic purchases of inputs, plus capital goods and know how fees amortised over ten years.

The NSEZ FAQs (Q27) describe the components.

Component	Includes	Treatment
A (inflow)	Physical exports realised in free foreign exchange; deemed exports as rule 53 counts them	Full value in the year
B (outflow): inputs	Imported and domestically procured raw materials and consumables	Full value in the year
B (outflow): capital goods	Imported capital goods	Amortised at 10% a year over 10 years
B (outflow): know how	Foreign technical know how fees	Amortised at 10% a year over 10 years
Free of cost goods	Goods received or supplied free of cost	Included from 3 Jun 2025, valued under the customs valuation rules

Sources: NSEZ FAQs, PIB release of 9 Jun 2025.

The Approval Committee monitors NFE through the Annual Performance Report in Form I. A chartered accountant certifies it before the end of the first quarter of the next year. Under the NSEZ FAQs (Q26):

1. A unit with negative NFE in its first and second years goes on a watch list.
2. Negative NFE at the end of year three brings a show cause notice.
3. Negative NFE through year five leads to penal action under rule 25 and the Foreign Trade (Development and Regulation) Act, 1992.

Free of cost tooling from a parent matters here. From 3 Jun 2025 its value counts in the NFE calculation, assessed under the customs valuation rules. Price your intercompany arrangements so the unit still clears the test.

What tax does an SEZ unit pay after the section 10AA sunset?

A new SEZ unit pays normal corporate tax. Section 10AA of the Income Tax Act, 1961 covered only units that began operations before assessment year 2021-22. In practice that means by 31 Mar 2020. No unit that started later gets the deduction.

For units that began in time, section 10AA allowed:

1. 100 percent of export profits for the first five consecutive years.
2. 50 percent for the next five years.
3. Up to 50 percent for a further five years, if credited to a Special Economic Zone Reinvestment Reserve and used as the section requires.

From 1 Apr 2026 the Income Tax Act, 2025 replaces the 1961 Act. Section 144 of the 2025 Act continues the deduction for eligible units. It computes the amount under section 10AA of the Income Tax Act, 1961. It allows it only for the tax years in which section 10AA would have allowed it.

Unit position	Income tax treatment from tax year 2026-27	Provision
Began operations by 31 Mar 2020, still in its 15 year window	Deduction for remaining years, computed under section 10AA	Section 144, Income Tax Act, 2025
Same unit, company opts for section 200	No SEZ deduction; tax at 22% plus surcharge and cess; no MAT	Section 200(1)(a)(ii)
Same unit, normal regime	MAT on book profit at 14% plus surcharge and cess	Section 206
Began operations after 31 Mar 2020	No SEZ deduction; choose normal rates or section 200	Sections 200 and 206
Branch of a foreign company	Foreign company rate of 35% plus surcharge and cess; no SEZ deduction for new units	First Schedule, Finance Act, 2026

Section 200 excludes all Chapter VIII deductions other than sections 146 and 148. Section 144 sits in Chapter VIII, so a company on section 200 loses it. Section 206 has no carve out for SEZ units, so MAT applies to them. MAT is 15 percent for FY 2025-26 and 14 percent from tax year 2026-27.

For a new foreign owned unit, the tax case for an SEZ now rests on customs duty, GST cash flow and the developer's infrastructure.

How does GST work for an SEZ unit?

Section 16(1)(b) of the IGST Act, 2017 zero rates supplies to an SEZ unit or developer for authorised operations. The Indian supplier makes them under a Letter of Undertaking without paying IGST and claims a refund of unused input tax credit. Supplies by an SEZ unit into India are inter state supplies, so IGST applies.

The 2021 changes matter to every DTA supplier. Finance Act, 2021 added the words "for authorised operations" to section 16(1)(b) and substituted section 16(3). Both took effect on 1 Oct 2023 under Notification No. 27/2023-Central Tax (section 16 text). Since then, payment of IGST with a refund is open only to notified classes under section 16(4).

The practical flows look like this.

Flow	GST and customs treatment	Key provision
Indian supplier to SEZ unit (goods or services)	Zero rated under LUT, for authorised operations	IGST Act, s.16(1)(b) and 16(3)
Import by SEZ unit from abroad	No customs duty for authorised operations	SEZ Act, s.26
SEZ unit export to a foreign buyer	Export, zero rated	IGST Act, s.16(1)(a)
SEZ unit goods cleared into India	Customs duty and IGST as on import, paid on a bill of entry	SEZ Act, s.30
SEZ unit services to an Indian customer	Inter state supply with IGST	IGST Act, s.7(5)(b)
Goods supplied to SEZ not used for authorised operations	Duty as if cleared for home consumption	NSEZ FAQ Q22

Our LUT filing guide covers the annual LUT. The DTA supplier also needs proof that the SEZ officer admitted the goods for authorised operations before it files the refund. Collect the endorsed documents with each consignment, not at year end.

Export realisation rules still apply to the SEZ unit. From 1 Oct 2026 the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 require realisation within nine months. See our guide on the export proceeds realisation period.

Can an SEZ unit sell in India?

Yes. Under section 30 of the Act, an SEZ unit may clear goods into the Domestic Tariff Area on payment of customs duty, as on an import. The DTA buyer pays basic customs duty, IGST and other duties at the rate in force on the date of removal (NSEZ FAQ Q19). The LoA may limit DTA sales of finished goods.

Two reforms changed this position.

1. Semiconductor and electronic component units (3 Jun 2025). Units in these sectors may now supply into the DTA after paying duty. See the PIB release of 9 Jun 2025.
2. One time concessional window (1 Apr 2026 to 31 Mar 2027). This came after the publish date of this page. See "What has happened since 23 Jan 2026" below.

DTA sales do not count as exports for NFE. A unit that sells heavily into India must still clear the NFE test over the block.

What is different for IT and ITeS units?

IT and ITeS SEZs have no minimum land area. They need a minimum built up processing area by city category (NSEZ FAQ Q10). It is 50,000 sq m in Category A cities, 25,000 sq m in Category B and 15,000 sq m in Category C. Processing area must stay at least half of the SEZ's total area.

Rule 11B, inserted on 6 Dec 2023 (G.S.R. 881(E)), lets a developer de notify complete floors as a non processing area. A tower can then house SEZ units and DTA tenants on different floors. Only complete floors qualify, and the Board of Approval must approve.

The rules for an IT services unit differ from a factory in three ways.

1. NFE from services. Service exports realised in foreign exchange count in A. Laptops, servers and software licences bought duty free count in B.
2. Export paperwork. SOFTEX ended on 30 Sep 2026. From 1 Oct 2026 the EDF for services replaces it, due within 30 days from the end of the invoice month.
3. Work from home. Rule 43A of the SEZ Rules, 2006 lets an IT or ITeS unit allow employees to work from home or from any place outside the SEZ. The unit emails the Development Commissioner on or before the start. It keeps the employee list for verification and accounts for the export revenue in the unit. Rule 43A(3) now runs to 31 Dec 2027 (G.S.R. 786(E) of 26 Dec 2024). G.S.R. 824(E) of 7 Nov 2023 substituted the rule. Read the rule as amended on the Department of Commerce SEZ site before you set a policy.

For a capability centre that serves the parent, compare the SEZ with an ordinary company first. Services exports from a DTA company are already zero rated under GST. See our guide on global capability centre setup.

How does an SEZ unit exit?

An SEZ unit can exit in two ways. It may opt out of the SEZ with the Development Commissioner's approval under rule 74, after paying duty on goods and capital goods. Or it may transfer its assets and liabilities to another eligible person under rule 74A. Either route needs the NFE position settled first.

The two routes differ on these points.

1. Approval. The Development Commissioner approves an opt out under rule 74. The Approval Committee approves a transfer under rule 74A.
2. Eligibility. Any unit may opt out. A transfer needs a valid LoA and lease for at least five years and at least two years of operation after commencement.
3. Duty. On opt out, the unit pays duty on goods and capital goods, with depreciation under rule 49(1). On transfer, the transferee takes over the obligations.
4. Undertaking. An opting out unit signs a legal undertaking in Form L. A transferee must meet all eligibility criteria.
5. NFE shortfall. An opting out unit without positive NFE faces penalty under the Foreign Trade (Development and Regulation) Act, 1992. A transferee continues the block.

Sources: NSEZ FAQs Q28 and Q29, MEPZ FAQ, Form L.

The NSEZ FAQ also mentions a one time option to exit on payment of duty on capital goods under the EPCG scheme, where eligible. Plan the exit at least a year ahead. Customs needs a no dues position, and the bond stays live until the Specified Officer discharges it.

If the Indian company itself will close, see our guide on winding up an Indian subsidiary.

Is an SEZ unit better than an ordinary company or an EOU?

An SEZ unit suits an export led manufacturer with heavy imported inputs. An ordinary DTA company suits a business that sells mainly in India or exports services. An Export Oriented Unit sits in between. It can be anywhere in India but needs at least INR 1 crore in plant, machinery and building (NSEZ FAQ Q30).

Point	SEZ unit	EOU	Ordinary DTA company
Location	Inside a notified SEZ	Anywhere approved	Anywhere
Minimum investment	None	INR 1 crore in plant, machinery and building	None
Customs duty on imports	Exempt for authorised operations	Exempt, under the EOU scheme	Payable, with schemes such as EPCG or Advance Authorisation
GST on domestic purchases	Zero rated under LUT	Payable, with credit	Payable, with credit
Domestic sales	Duty as on import	Duty under the EOU scheme	Normal GST
Export obligation	Positive NFE over five years	Positive NFE	None
New income tax holiday	None	None	None

Sources: NSEZ FAQs, MEPZ FAQ.

For a services company, the extra compliance of an SEZ rarely pays for itself today. For a manufacturer importing USD 10 million of inputs a year, duty free import and GST cash flow can decide the case.

What changed in 2026

The reforms span 2023 to 2026. Some came after this page's publish date of 23 Jan 2026.

Item	Old rule	New rule	Date	Instrument
Minimum land for semiconductor or electronic component SEZs	50 hectares	10 hectares	3 Jun 2025	SEZ Rules amendment (rule 5)
Encumbrance free land	Strict condition	Board may relax where land is mortgaged or leased to government agencies	3 Jun 2025	Rule 7
DTA supply by semiconductor and electronics units	Restricted	Allowed on payment of duty	3 Jun 2025	Rule 18
Free of cost goods in NFE	Not counted	Counted, valued under the customs valuation rules	3 Jun 2025	Rule 53
IT and ITeS SEZ floors	Whole zone processing area	Complete floors can become non processing area	6 Dec 2023	Rule 11B, G.S.R. 881(E)
GST on supplies to SEZ	Zero rated; IGST paid route open	Zero rated only for authorised operations; LUT route	1 Oct 2023	Finance Act, 2021; Notification 27/2023-Central Tax
SEZ income tax deduction	Section 10AA, 1961 Act	Section 144, 2025 Act, for remaining years only	1 Apr 2026	Income Tax Act, 2025
MAT rate	15%	14%	Tax year 2026-27	Finance Act, 2026
DTA sale at concessional duty	Full duty	Concessional rates up to 30% of highest recent exports	1 Apr 2026 to 31 Mar 2027	Notification 11/2026-Customs
Export realisation	2015 Regulations	Nine months; EDF replaces SOFTEX	1 Oct 2026	FEMA 23(R)/2026-RB

What has happened since 23 Jan 2026

The Union Budget of 1 Feb 2026 announced a one time measure for SEZ manufacturers. Eligible units could sell part of their output into the DTA at concessional duty, capped at a share of exports. The PIB Research note of 28 Mar 2026 cites point 158 of the Budget speech.

CBIC implemented it through Notification No. 11/2026-Customs of 31 Mar 2026 under section 25 of the Customs Act, 1962 (PIB release 2247628, PIB release 2247993). The terms are:

1. Window. Clearances from 1 Apr 2026 to 31 Mar 2027.
2. Eligibility. Manufacturing units that commenced production on or before 31 Mar 2025, with at least 20 percent value addition inside the SEZ.
3. Cap. 30 percent of the highest annual FOB export value in any of the three preceding financial years.
4. Exclusions. FTWZ units, goods cleared without adequate manufacture, and sectors such as agriculture, marble and granite, gems and jewellery, vehicles, toys and petroleum. PIB also lists vehicles among the covered sectors, so check the notification text for your tariff line.
5. Procedure. The unit needs a Development Commissioner's certificate of compliance and a declaration to pay full duty if conditions fail. Customs assesses the bill of entry facelessly, and audit follows under the SEZ Rules. Duty drawback on inputs is not available for these clearances.

The concessional rates step down by band of present effective duty (BCD, AIDC and Health Cess), according to PIB release 2247628 of 1 Apr 2026:

1. 7.5 percent falls to 6.5 percent.
2. 10 percent falls to 9 percent.
3. 12.5 or 15 percent falls to 10 percent.
4. 20 percent falls to 12.5 percent.
5. Above 20 and up to 30 percent falls to 15 percent.
6. Above 30 and up to 40 percent falls to 20 percent.

Other events since the publish date:

1. Income Tax Act, 2025 in force (1 Apr 2026). Section 144 replaced section 10AA for remaining years.
2. Dholera SEZ (9 Apr 2026). The government notified a 66.166 hectare SEZ at Dholera, Gujarat for Tata Semiconductor Manufacturing Private Limited. Proposed investment is INR 91,000 crore (PIB release 2252649).
3. Form H amended (9 Jul 2026). G.S.R. 609(E) of the Special Economic Zones (Second Amendment) Rules, 2026 replaced "one hundred eighty days" with "nine months" in condition 7 of Form H. Read the current Form H before you sign the bond.
4. Duty paid goods returned to a unit (15 Oct 2026). G.S.R. 893(E) of the Special Economic Zones (Third Amendment) Rules, 2026 substituted rule 49(2). It lets a unit take back duty paid goods that a DTA buyer refuses within 30 days of clearance, and goods sent for repair.
5. Export regulations (1 Oct 2026). FEMA 23(R)/2026-RB set nine months for realisation and replaced SOFTEX with the EDF.

Worked example

Scenario 1. NFE for a new electronics unit

A US group's Indian Private Limited company commences production in an SEZ on 1 Jul 2026. It imports capital goods worth INR 20 crore in year one. Amortised at 10 percent a year, B includes INR 2 crore of capital goods each year. The parent also sends moulds free of cost, valued at INR 3 crore under the customs valuation rules. We treat the moulds as capital goods, amortised at INR 0.3 crore a year. Check that treatment with your Development Commissioner.

In year one the unit also pays the parent a lump sum know how fee of INR 5 crore. It amortises the fee at INR 0.5 crore a year.

Year	Exports realised, A (INR crore)	Inputs imported and bought locally (INR crore)	Capital goods and moulds amortised (INR crore)	Know how fee amortised (INR crore)	NFE for the year (INR crore)	Cumulative NFE (INR crore)
1	10.0	8.0	2.3	0.5	−0.8	−0.8
2	25.0	18.0	2.3	0.5	4.2	3.4
3	30.0	21.0	2.3	0.5	6.2	9.6
4	32.0	22.0	2.3	0.5	7.2	16.8
5	35.0	24.0	2.3	0.5	8.2	25.0

Year one is negative by INR 0.8 crore, and the cumulative figure turns positive in year two. NSEZ FAQ Q26 puts a unit on the watch list for negative NFE in the first and second years. On our reading, a positive cumulative figure in year two avoids that. The five year cumulative NFE of INR 25 crore clears rule 53.

Scenario 2. DTA sale under Notification 11/2026-Customs

An SEZ unit commenced production in 2022. Its FOB exports were INR 40 crore in 2023-24, INR 50 crore in 2024-25 and INR 45 crore in 2025-26. The product's effective duty is 20 percent, and value addition inside the SEZ is 28 percent.

1. Highest annual FOB exports in the three preceding years: INR 50 crore.
2. Cap on concessional DTA clearances in 2026-27: 30% × INR 50 crore = INR 15 crore.
3. Concessional rate for a 20 percent product: 12.5 percent.
4. Duty at the normal rate on INR 15 crore: INR 15 crore × 20% = INR 3 crore.
5. Duty at the concessional rate: INR 15 crore × 12.5% = INR 1.875 crore.
6. Saving in effective duty: INR 3 crore − INR 1.875 crore = INR 1.125 crore, before the IGST effect on the lower duty base.

Clearances above INR 15 crore pay the full 20 percent. The unit cannot claim duty drawback on inputs for the concessional clearances.

Common mistakes

1. Assuming a tax holiday still exists. Section 10AA covered only units that began by 31 Mar 2020. Fix: model the unit at section 200 or normal rates with MAT.
2. Starting a new product before the LoA covers it. Exports outside the LoA create duty and NFE problems. Fix: apply for a change to the LoA first.
3. Sizing the bond on year one numbers. Imports grow and the bond falls short. Fix: revise the Form H bond when projected imports rise.
4. Missing the six month lease deadline. Rule 18 needs a registered lease within six months of the LoA. Fix: start stamp duty and registration with the developer as soon as you have the LoA.
5. Ignoring free of cost goods in NFE. From 3 Jun 2025 they count, valued under the customs valuation rules. Fix: include parent supplied tooling and samples in the NFE workings.
6. Treating every DTA purchase as zero rated. Only supplies for authorised operations qualify. Fix: share the authorised operations list with each supplier and keep the officer's endorsement.
7. Using the concessional DTA window without the certificate. Notification 11/2026-Customs needs the Development Commissioner's certificate and a declaration. Fix: get the certificate before the first bill of entry.
8. Leaving exit too late. Duty on capital goods and the bond discharge take time. Fix: plan the rule 74 or 74A route a year before closure.

Checklist

1. Decide between an Indian subsidiary and a branch office in the SEZ.
2. Check FDI eligibility, including Press Note 3 for land border investors.
3. Shortlist SEZs and obtain a provisional space offer from the developer.
4. Prepare five year projections of exports, imports and NFE.
5. File Form F with the Development Commissioner, with a copy to the developer.
6. Attend the Approval Committee meeting and answer queries.
7. Collect the Letter of Approval in Form G and diarise its one year validity.
8. Register the lease deed within six months of the LoA.
9. Execute the bond cum legal undertaking in Form H and get it accepted.
10. Register for GST, IEC and customs in the SEZ, and file the LUT for suppliers.
11. Notify the Development Commissioner of the date of commencement.
12. Track NFE each quarter and file the Annual Performance Report in Form I.
13. Review the income tax regime each year: section 144, section 200 or MAT.
14. Plan exit under rule 74 or rule 74A before any closure decision.

If you want help with the Form F file or the NFE model, write to Krystal7 with the zone and the product list.

Frequently Asked Questions

Can a foreign company set up a unit in an SEZ in India?+

Yes. Under section 15 of the Special Economic Zones Act, 2005, a foreign company can set up an SEZ unit through its Indian Private Limited company. It can also open a branch office in an SEZ under RBI general permission, for manufacturing or services in sectors with 100 percent FDI.

What form is used to apply for an SEZ unit?+

The application is Form F under rule 17 of the SEZ Rules, 2006. You file it with the Development Commissioner of the zone, with a copy to the developer. Form F is a consolidated application that also covers IEC, GST, water, power and pollution clearances.

How long does SEZ unit approval take?+

The Approval Committee meets every fortnight and decides within 15 days of receiving a complete Form F under rule 18. Proposals that need the Board of Approval take up to 45 days. Add time for the developer's space offer, the lease deed and the Form H bond.

How long is an SEZ Letter of Approval valid?+

The Letter of Approval in Form G is valid for one year for the unit to commence production. The Development Commissioner can extend it under rule 19. After commencement it is valid for five years and can be renewed five years at a time through Form F1.

What is the net foreign exchange requirement for an SEZ unit?+

Rule 53 of the SEZ Rules, 2006 requires positive net foreign exchange, calculated cumulatively over five years from commencement. NFE equals export inflows minus imports, domestic inputs, know how fees and capital goods amortised at 10 percent a year. The unit reports it in Form I.

Do new SEZ units get an income tax holiday?+

No. Section 10AA of the Income Tax Act, 1961 covered only units that began operations by 31 Mar 2020. Section 144 of the Income Tax Act, 2025 continues the deduction for those units' remaining years. A unit that started later pays normal rates or 22 percent under section 200.

Does MAT apply to an SEZ unit?+

Yes, unless the company opts for section 200. Section 206 of the Income Tax Act, 2025 has no carve out for SEZ units. MAT is 15 percent for FY 2025-26 and 14 percent from tax year 2026-27, plus surcharge and cess. A company on section 200 pays no MAT but loses the section 144 deduction.

Are supplies to an SEZ unit zero rated under GST?+

Yes, if they are for authorised operations. Section 16(1)(b) of the IGST Act, 2017 zero rates supplies of goods or services to an SEZ unit or developer for authorised operations. The supplier uses a Letter of Undertaking and claims a refund of unused input tax credit.

Can an SEZ unit sell goods in the domestic market?+

Yes. Under section 30 of the SEZ Act, goods cleared into the Domestic Tariff Area pay customs duty as if imported. Notification 11/2026-Customs of 31 Mar 2026 adds a window from 1 Apr 2026 to 31 Mar 2027. Eligible manufacturers pay concessional duty on up to 30 percent of their highest recent annual exports.

What is a bond cum legal undertaking in an SEZ?+

It is the undertaking in Form H that an SEZ unit signs under rule 22 of the SEZ Rules, 2006. It covers proper use and accounting of duty free goods and achieving positive NFE. Its value generally equals the duty on three months' projected imports and procurements.

What are the minimum area rules for an IT SEZ?+

An IT or ITeS SEZ has no minimum land area. It needs a minimum built up processing area. That is 50,000 sq m in Category A cities, 25,000 sq m in Category B and 15,000 sq m in Category C. Rule 11B lets complete floors become non processing area.

How does an SEZ unit exit the scheme?+

Under rule 74 the unit opts out with the Development Commissioner's approval, pays duty on goods and depreciated capital goods and signs Form L. Under rule 74A it transfers assets and liabilities to an eligible person. That needs five years of LoA and lease and two years of operation.

Can an SEZ unit be a 100 percent foreign owned company?+

Yes, where the sector allows 100 percent FDI under the automatic route. The SEZ route does not change FDI caps or Press Note 3 (2020 Series). The Indian company reports the share allotment in Form FC-GPR within 30 days, as any foreign owned company does.

What changed for semiconductor SEZs in 2025?+

The SEZ Rules were amended on 3 Jun 2025. Minimum land for a semiconductor or electronic component SEZ fell from 50 to 10 hectares. The Board can relax the encumbrance rule. Units can supply into India on payment of duty, and free of cost goods count in NFE.

Is GIFT City IFSC the same as an SEZ unit?+

GIFT IFSC sits inside a multi services SEZ, but IFSC units follow the International Financial Services Centres Authority Act, 2019 and IFSCA rules. Their income tax relief is in section 147 of the Income Tax Act, 2025, not section 144. See our guide on GIFT City IFSC setup.

Sources

• Department of Commerce, Special Economic Zones Rules, 2006, as hosted by Noida SEZ (rules 17, 18, 19, 22), https://nsez.gov.in/Resources/SEZ%20Rule,%202006.pdf
• Noida SEZ, FAQs on SEZ (Q10, Q16, Q19, Q22, Q23, Q26 to Q31), https://www.nsez.gov.in/Resources/SEZ%20FAQs.pdf
• MEPZ SEZ, FAQ, https://mepz.gov.in/faq/
• MEPZ SEZ, Form G, format for Letter of Approval for unit (rule 19), https://mepz.gov.in/wp-content/uploads/2025/04/18-Format-for-LoA-for-Unit-Form-G.pdf
• MEPZ SEZ, Form L, legal undertaking for exit of unit, https://mepz.gov.in/wp-content/uploads/2025/02/23-Form-for-Legal-underetaking-for-exit-of-the-unit-from-the-SEZ-scheme-Form-L.pdf
• Ministry of Commerce and Industry (PIB), SEZ reforms for semiconductor and electronics component manufacturing, 9 Jun 2025, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2135116
• PIB Research, Union Budget 2026-27: Strengthening SEZs for Global Competitiveness and Growth, 28 Mar 2026, https://static.pib.gov.in/WriteReadData/specificdocs/documents/2026/mar/doc2026328835201.pdf
• Ministry of Finance (PIB), CBIC one time relief for SEZ units selling in DTA, release 2247628, 1 Apr 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2247628&reg=48&lang=2
• Ministry of Commerce and Industry (PIB), Conditional concessional customs duty for SEZ to DTA sales, release 2247993, 1 Apr 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2247993&reg=48&lang=2
• Ministry of Commerce and Industry (PIB), SEZ notified at Dholera, release 2252649, 16 Apr 2026, https://www.pib.gov.in/PressReleasePage.aspx?PRID=2252649&reg=3&lang=1
• PIB, Backgrounder on Special Economic Zones, Jan 2022, https://static.pib.gov.in/WriteReadData/specificdocs/documents/2022/jan/doc2022153001.pdf
• Income Tax Department, Section 10AA, Income Tax Act, 1961, https://www.incometaxindia.gov.in/w/section-10aa-18
• Income Tax Department, Section 144, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-144-88
• Income Tax Department, Section 200, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-200-77
• Income Tax Department, Section 206, Income Tax Act, 2025, https://www.incometaxindia.gov.in/w/section-206-75
• CBIC, Section 16, Integrated Goods and Services Tax Act, 2017, https://taxinformation.cbic.gov.in/content/html/tax_repository/gst/acts/2017_IGST_Act/active/chaptervii/section16_v1.00.html
• Reserve Bank of India, Master Direction on Establishment of Branch Office, Liaison Office, Project Office or any other place of business in India by foreign entities, updated as on 18 May 2021, https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10404
• Reserve Bank of India, Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026, FEMA 23(R)/2026-RB, https://www.rbi.org.in/Scripts/BS_FemaNotifications.aspx?Id=13277
• Department of Commerce, Special Economic Zones Act, 2005 (sections 15, 26, 30, 53), https://sezindia.gov.in/sites/default/files/SEZAct2005.pdf
• Department of Commerce, SEZ Rules and amendments listing, https://sezindia.gov.in/sez-rules-and-amendments
• Department of Commerce, G.S.R. 824(E) of 7 Nov 2023 (rule 43A, hybrid working), https://sezindia.gov.in/sites/default/files/sez_rules_amendments/Notificaion%20of%2043A%20Work%20from%20Home%20%20no%2007_11_2023.pdf
• Department of Commerce, G.S.R. 786(E) of 26 Dec 2024 (rule 43A, period to 31 Dec 2027), https://sezindia.gov.in/sites/default/files/sez_rules_amendments/Fifth%20Amendment%20in%20Rule%2043A%20of%20SEZ%20Rules%2C%202006%20work%20from%20home%2026.12.2024.pdf
• Department of Commerce, G.S.R. 881(E) of 6 Dec 2023 (rule 11B), https://sezindia.gov.in/sites/default/files/sez_rules_amendments/floor%20wise%2011%20B%20Rules%20on%2006_12_2023.pdf
• Department of Commerce, G.S.R. 609(E) of 9 Jul 2026 (Form H amendment), https://sezindia.gov.in/sites/default/files/sez_rules_amendments/Second%20amendment%20rule%202026.pdf
• Department of Commerce, G.S.R. 893(E) of 15 Oct 2026 (rule 49(2) amendment), https://sezindia.gov.in/sites/default/files/sez_rules_amendments/Rule%2049%20dt.%2015th%20October%2C%202026.pdf
• Income Tax Department, First Schedule, Finance Act, 2026 (rates for a foreign company), https://www.incometaxindia.gov.in/w/first-schedule-104
• CBIC, GST Acts and Rules listing (IGST Act section 7(5)(b); CGST Rules, rule 96A), https://cbic-gst.gov.in/gst-acts.html