FAQS ABOUT SPECIAL ECONOMIC ZONE

1 What is a Special Econo

ic Zone !

Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. 2 Whe"e in In#ia SEZs a"e locate# ! At present there eight functional Special Economic Zones located at Santa Cruz ( aharashtra)! Cochin ("erala)! "andla and Surat (#u$arat)! Chennai (%amil &adu)! 'isa(hapatnam (Andhra )radesh)! *alta (+est ,engal) and &odia (-ttar )radesh) in .ndia. *urther a Special Economic Zone at .ndore ( adhya )radesh ) os no/ ready for operation. .n addition 01 approvals have been given for setting up of SEZ at )ositra (#u$arat)! &avi umbai and "opata ( aharashtra)! &anguneri (%amil &adu)! "ulpi and Salt 2a(e (+est ,engal)! )aradeep and #opalpur (3rissa)! ,hadohi! "anpur! oradabad and #reater &oida (-.).)! 'isha(hapatnam and "a(inada (Andhra )radesh)! 'allarpadam4)uthuvypeen ("erala) 5assan ( "arnata(a)! 6aipur and 6odhpur ( 7a$asthan) on the basis of proposals received from the State #overnments. 8. Who can set $p SEZs! Any private4public4$oint sector or State #overnment or its agencies can set up Special Economic Zone (SEZ). %&Can Fo"ei'n Co 9es (& )o* can one appl+ ,o" settin' $p o, SEZs ! 0: copies of application! indicating name and address of the applicant! status of the promoter along /ith a pro$ect report covering the follo/ing particulars may be submitted to the Chief Secretary of the State; 2ocation of the proposed Zone /ith details of e<isting infrastructure and that proposed to be established= .ts area! distance from the nearest sea port 4 airport 4 rail 4 road head etc. *inancial details! including investment proposed! mode of financing and viability of the pro$ect. >etails of foreign e?uity and repatriation of dividends etc.! if any +hether the Zone /ill allo/ only certain specific industries or /ill be a multi@product Zone. panies set $p SEZs !

%he State #overnment shall! for/ard it along /ith their commitment to the follo/ing to the >epartment of Commerce! #overnment of .ndia; %hat area incorporated in the proposed Special Economic Zone is free from environmental restrictions= %hat /ater! electricity and other services /ould be provided as re?uired=

%hat the units /ould be given full e<emption in electricity duty and ta< on sale of electricity for self generated and purchased po/er= %o allo/ generation! transmission and distribution of po/er /ithin SEZ= %o e<empt from State sales ta<! octroi! mandi ta<! turnover ta< and any other duty4cess or levies on the supply of goods from >omestic %ariff Area to SEZ units= %hat for units inside the Zone! the po/ers under the .ndustrial >isputes Act and other related labour Acts /ould be delegated to the >evelopment Commissioner and that the units /ill be declared as a )ublic -tility Service under .ndustrial >isputes Act. %hat single point clearances system and minimum inspections re?uirement under State 2a/s47ules /ould be provided.

%he proposal incorporating the commitments of the State #overnment /ill be considered by an .nter@ inisterial Committee in the >epartment of Commerce. 3n acceptance of the proposal! a letter of permission /ill be issued to the applicant. A. Are there any terms B conditions for setting up of SEZ C 3nly units approved under SEZ scheme /ould be permitted to be located in SEZ. %he SEZ units shall abide by local la/s! rules! regulations or bye@la/s in regard to area planning! se/erage disposal! pollution control and the li(e. %hey shall also comply /ith industrial and labour la/s as may be locally applicable. Such SEZ shall ma(e security arrangements to fulfill all the re?uirements of the la/s! rules and procedures applicable to such SEZ. %he SEZ should have a minimum area of 0DDD hectares and at least 2: E of the area is to be earmar(ed for developing industrial area for setting up of units. inimum area of 0DDD hectares /ill not be applicable to product specific and port4airport based SEZs. +herever the SEZs are landloc(ed! an .nland Container >epot (.C>) /ill be an integral part of SEZs. >etailed guidelines on setting up of SEZ in the )rivate46oint4State Sector is given in Appendi< 0F@ ...& of 5andboo( of )rocedures 'olume .. -& What is "ole o, State .o/e"n ents!

State #overnments /ill have a very important role to play in the establishment of SEZ. 7epresentative of the State #overnment! /ho is a member of the .nter@ inisterial Committee on private SEZ! is consulted /hile considering the proposal. ,efore recommending any proposals to the inistry of Commerce B .ndustry (>epartment of Commerce)! the States must satisfy themselves that they are in a position to supply basic inputs li(e /ater! electricity! etc. 0& What a"e the ,acilities Incenti/e1 Facilities to SEZ 2e/elope" ! 0DDE *>. allo/ed for; (a) to/nships /ith residential! educational and recreational facilities on a case to case basis! (b)franchise for basic telephone service in SEZ. .ncome %a< benefit under ( 1D .A ) to developers for any bloc( of 0D years in 0: years. >uty free import4domestic procurement of goods for development! operation and maintenance of SEZs E<emption from Service %a< 4CS%. .ncome of infrastructure capital fund4co. from investment in SEZ e<empt from .ncome %a<

.nvestment made by individuals etc in a SEZ co also eligible for e<emption u4s 11 of .% Act >eveloper permitted to transfer infrastructure facility for operation and maintenance. #eneration! transmission and distribution of po/er in SEZs allo/ed *ull freedom in allocation of space and built up area to approved SEZ units on commercial basis. Authorised to provide and maintain service li(e /ater! electricity! security! restaurants and recreation centres on commercial lines.

3& )o* to set $p a $nit in SEZ ! *or setting up a manufacturing! trading or service units in SEZ! 8 copies of pro$ect proposal in the format prescribed at Appendi< 0F@.A of the 5andboo( of )rocedures! 'ol.0 to be submitted to the >evelopment Commissioner of the SEZ. 14& What is the app"o/al echanis ,o" the $nits !

All approvals to be given by the -nit Approval Committee headed by the >evelopment Commissioner. Clearance from the >epartment of )olicy and )romotion4,oard of Approvals! /herever re?uired /ill be obtained by the >evelopment Commissioner! before the 2etter of .ntent is issued. 11&What is the o5li'ation o, the Unit $n#e" the Sche e!

SEZ units have to achieve positive net foreign e<change earning as per the formula given in paragraph Appendi< 0F@.. (para 02.0) of 5andboo( of )rocedures! 'ol.0. *or this purpose! a 2egal -nderta(ing is re?uired to be e<ecuted by the unit /ith the >evelopment Commissioner. %he units have to provide periodic reports to the >evelopment Commissioner and Zone Customs as provided in Appendi< 0F@. * of the 5andboo( of )rocedures! 'ol.0. %he units are also to e<ecute a bond /ith the Zone Customs for their operation in the SEZ. Any company set up /ith *>. has to be incorporated under the .ndian Companies Act /ith the 7egistrar of Companies for underta(ing .ndian operations 16&What a"e the incenti/e1,acilities a/aila5le ,o" SEZ $nits! *ollo/ing incentive4 facilities to SEZ enterprises; C$sto s an# E7cise 8 SEZ units may import or procure from the domestic sources! duty free! all their re?uirements of capital goods! ra/ materials! consumables! spares! pac(ing materials! office e?uipment! ># sets etc. for implementation of their pro$ect in the Zone /ithout any licence or specific approval. >uty free import4domestic procurement of goods for setting up of SEZ units. #oods imported4procured locally duty free could be utilised over the approval period of : years. >omestic sales by SEZ units /ill no/ be e<empt from SA>. >omestic sale of finished products! by@products on payment of applicable Custom duty. >omestic sale re$ects and /aste and scrap on payment of applicable Custom duty on the transaction value.

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e ta7 8

)hysical e<port benefit 0DDE .% e<emption (0DA) for first : years and :DE for 2 years thereafter. 7einvestment allo/ance to the e<tend of :DE of ploughed bac( profits Carry for/ard of losses Fo"ei'n 2i"ect In/est ent 8

0DDE foreign direct investment is under the automatic route is allo/ed in manufacturing sector in SEZ units e<cept arms and ammunition! e<plosive! atomic substance! narcotics and hazardous chemicals! distillation and bre/ing of alcoholic drin(s and cigarettes ! cigars and manufactured tobacco substitutes. &o cap on foreign investments for SS. reserved items. Ban9in' 1 Ins$"ance1E7te"nal Co e"cial Bo""o*in's8

Setting up 3ff@shore ,an(ing -nits allo/ed in SEZs. 3,-Gs allo/ed 0DDE .ncome %a< e<emption on profit for 8 years and :D E for ne<t t/o years. E<ternal commercial borro/ings by units up to H :DD million a year allo/ed /ithout any maturity restrictions. *reedom to bring in e<port proceeds /ithout any time limit. *le<ibility to (eep 0DDE of e<port proceeds in EE*C account. *reedom to ma(e overseas investment from it. Commodity hedging permitted. E<emption from interest rate surcharge on import finance. SEZ units allo/ed to G/rite@offG unrealized e<port bills. Cent"al Sales Ta7 Act 8 E<emption to sales made from >omestic %ariff Area to SEZ units. .ncome %a< Act; Se"/ice Ta78 E<emption from Service %a< to SEZ units En/i"on ent 8

SEZs permitted to have non@polluting industries in .% and facilities li(e golf courses! desalination plants! hotels and non@polluting service industries in the Coastal 7egulation Zone area E<emption from public hearing under Environment .mpact Assessment &otification Co panies Act 8 Enhanced limit of 7s. 2.F crores per annum allo/ed for managerial remuneration

Agreement to opening of 7egional office of 7egistrar of Companies in SEZs. E<emption from re?uirement of domicile in .ndia for 02 months prior to appointment as >irector. 2"$'s an# Cos etics 8

E<emption from port restriction under >rugs B Cosmetics 7ules. S$5:Cont"actin'1Cont"act Fa" in' 8

SEZ units may sub@contract part of production or production process through units in the >omestic %raiff Area or through other E3-4SEZ units SEZ units may also sub@contract part of their production process abroad. Agriculture45orticulture processing SEZ units allo/ed to provide inputs and e?uipments to contract farmers in >%A to promote production of goods as per the re?uirement of importing countries. 1;&Whethe" SEZs ha/e 5een e7e pte# ,"o La5o$" la*s!

&ormal 2abour 2a/s are applicable to SEZs! /hich are enforced by the respective state #overnments. %he state #overnment has been re?uested to simplify the procedures4returns and for introduction of a single /indo/ clearance mechanism by delegating appropriate po/ers to >evelopment Commissioners of SEZs. 1%&What a"e the ,acilities ,o" 2o estic s$pplie"s to Special Econo ic Zone

Supplies from >omestic %ariff Area (>%A) to SEZ to be treated as physical e<port. >%A supplier /ould be entitled to ; >ra/bac(4>E), CS% E<emption E<emption from State 2evies >ischarge of E) if any on the suppliers .ncome %a< benefit as applicable to physical e<port under section 1D 55C of the .ncome %a< Act. 1(&Who onito" the ,$nctionin' o, the $nits in SEZ !

)erformance of the SEZ units monitored by a -nit Approval Committee consisting of >evelopment Commissioner! Custom and representative of State #ovt. on annual basis. 1<&A"e SEZ=s cont"olle# 5+ .o/e"n ent !

.n all SEZGs ! the statutory functions are controlled by the #overnment. #overnment also controls the operation and maintenance function in the I Central #overnment controlled SEZs. .n rest of the operation and maintenance are privatised. 1-& What a"e the special ,eat$"es i, *e co e to the >one!

%he units /ould be entitled for a pac(age of .ncentives and a simplified operating environment 10& What a5o$t the Licenses ,o" I po"ts!

&o 2icense is re?uired for imports! including second hand machineries.

13&I, one 5$+ 'oo#s ,"o

2TA sho$l# the+ "e?$i"e to pa+ State Sales Ta7 an# E7cise!

&o. State has e<empted the sales from >%A to SEZ from local levies and ta<es. 64&What is the p"actical "ole o, 2e/elop ent Co issione"!

>evelopment Commissioner is the nodal officer for SEZs and help in resolution of problem! if any! faced by the units 4 developer. 61&@o$tine e7a ination o, 'oo#s 5+ c$sto s in the EOU is co on&

+ill the same practice continue at the SEZC Customs e<amination is to the bear minimum. SEZ units function on self certification basis. 66&What a"e the p"o/isions "elatin' to E7te"nal Co e"cial Bo""o*in' AECBB in SEZ !

E<ternal commercial borro/ings by units up to H :DD million a year allo/ed /ithout any maturity restrictions *or details please see guidelines issued by 7,. (*.&o. F(2)42DD2@EC,! dated 0:.J.2DD2). 6;&Will it 5e possi5le to s$ppl+ to othe" $nits in SEZ! 9es. .nter -nit Sales are permitted as per the )olicy. ,uyer procuring from another unit pays in *oreign E<change.