Advantage SEZ

Fiscal Incentives/Benefits to SEZ Units

The prospective industrial units in the Agro & Food Processing Units will enjoy a host of financial advantages and incentives which will make their products competitive in the export market. Operational benefit as defined by the Central SEZ Act 2005, Central SEZ Rules 2006 and Haryana SEZ Act 2005 include:

• Income Tax Exemption for 15 years u/s 10AA of the Income Tax Act (on graded basis).
• Exemption from Service Tax
• CST exempted
• Duty free material except CG to be utilized over a period of 5 years
• 100% FDI investment permitted through Automatic Route
• MAT Exempted
• Supplier from DTA to SEZ considered as physical exports
• State Duties, Taxes, Cess, Levies, Rural Development Tax, Mandi Tax, Purchase Tax, etc. are exempted
• Exemption from duties on raw material for construction of factory building, building material, cement, steel, etc.
• No Import & Excise duty on Capital Goods like Machinery & Plant for food processing industry and rice milling machinery
• No Excise duty on Packaging Material
• Commodity Hedging permitted
• Agriculture Produce Cess exempted
• Electricity Duty exemption
• VAT Exempted
• Exemption from Stamp Duty
• Contract farming permitted under Central SEZ Rules 44, unit can supply duty free inputs to farmers (Seeds, Fertilizers, etc.)
• Single window clearance for approvals and permissions (Board of Approval, Ministry of Commerce, Govt. of India and Unit Approval Committee) provides a unique, hassle-free environment.
• Full freedom of Subcontracting, job work from DTA permitted.
• Sub contracting of part of production from abroad permitted.
• 100% FDI investment funded expect negative list.
• External Commercial Borrowings (ECB) upto USD 500 million in a year.

SEZ Units can operate both in the Domestic Tariff Area (DTA) and SEZ Area

In-fact a company can set up units both in the SEZ and DTA, provided separate accounting procedures are maintained by the units.

The recent changes in Section 10AA of the Income Tax Act in the recently announced Union Budget allow a business to have the same unit in DTA as well as SEZ. The amendment was made to rectify an anomaly in the wording of the Section that adversely affected SEZ units. As per the Section 10AA, export turnover of the unit is divided by the total turnover of the assess for calculation of exemption from income tax on export profit.

Now the total turnover of the undertaking i.e. unit located in the SEZ will be considered instead of total turnover of the business of the assesses.

The rectification of the anomaly will be a very big incentive for companies to move into the SEZs as they can keep the tax rebate earned on exports from SEZs separate from similar rebate earned from their units in DTA (or the area outside SEZs in the country where normal taxes and duties apply).

Used Capital Goods (MACHINERY) can be transferred from DTA to a SEZ unit.

Units are now permitted to shift used capital goods into SEZ beyond the stipulated valuation limit of 20% by paying income tax. This move will be a big incentive for all the units coming into SEZs as they will now be able to shift expensive capital items, worth over 20 percent of total value of new capital goods installed in the SEZ unit (which is the current norm) provided they pay income tax on it.

Operational Period – Payment Plan – Approval Mechanism

• Entire infrastructural and services to be laid down by mid 2011.
• Mega Units requiring 5 acres and above to be offered concessional rate with soft payment plan linked with site development
• Approval to be secured/arranged for industrial units from UAC/Single Window Committee.
• Symbolic physical possession of industrial plot by end of 2010 to enable the unit to take effective steps to implement its project, secure loan, etc.

Procurement, Import and Export of Prohibited and Restricted Goods

As per circular No-105 dated 05/03/2010 issued by Export Promotion Council for EOUs & SEZs, SEZ Units have been permitted as under:

• To export prohibited items, provided they import raw-material for the same. However, each such case will be placed before BOA for approval so that views of DGFT,DoR and others can be considered before taking a decision.
• In respect of items which are prohibited for import, SEZ units will be permitted to import the same provided they export goods made out of the same. As in the case of exports, each such case will be placed before BOA for consideration and approval.
• In respect of supply of restricted items by a DTA unit to SEZ Developer/unit, the DTA unit can supply such items to SEZ Developer or unit for setting up infrastructure facility or for setting up of a unit. It can also supply raw material to SEZ unit for undertaking a manufacturing operation except refrigeration, cutting, polishing and blending. However, it will require prior approval of Board of Approval.

Important Guidelines/Instructions for setting up SEZ units in notified SEZ

Net Foreign Exchange (NFE) – as per SEZ Rules 2006, a SEZ unit shall achieve positive foreign exchange earnings to be calculated cumulatively for a period of 5 (five) years from the commencement of production. NFE is calculated on a simple formulae i.e. Exports (FOB value of all exports) – Imports (CIF value of all imports) > 0. In simple words, if a unit is brining in “X” amount foreign exchange i.e. exports and is buying “Y” amount of foreign exchange from the Government and if X is > Y even by 1$, it has achieved a positive NFE. The benefits to SEZ units are available subject to attainment of positive foreign earnings (NFE). (the detailed guidelines of NFE are given in SEZ Rules 2006 under chapter VI (Rule 53).