India SEZ Tax Benefits & Compliance Guide for Foreign Companies 2025

India’s Special Economic Zones (SEZs) have long been a magnet for foreign direct investment, fueling export-led growth and propelling India into the ranks of global trade powerhouses. As the world’s fifth-largest economy, India leverages SEZs to streamline cross-border trade, making them attractive launchpads for manufacturers, service providers, and global investors. Think of SEZs as dynamic growth engines, providing foreign firms with a strategic springboard into enormous domestic and international markets.

Take the example of Foxconn, the global electronics behemoth, which established a sprawling plant in the Sri City SEZ near Chennai. With access to top-tier infrastructure and regulatory relaxations, they were able to scale operations rapidly while optimizing cost structures. This is just one case among many—for foreign companies, SEZs offer not simply entry, but an accelerated route to growth.

What Are SEZs in India?

An SEZ (Special Economic Zone) is a designated geographic area, carved out specifically to facilitate export-oriented trade by treating these zones as “foreign territory” for customs, duties, and trade operations. Under the SEZ Act, 2005, the government created a framework that rewards businesses with:

• Simplified compliance processes: Reduced bureaucracy for easy setup and operation.
• Regulatory flexibility: Relaxed rules around labor, environment, and foreign exchange.
• Global-standard infrastructure: Ready access to reliable transport, logistics, and utilities.
• Multiple tax and duty benefits: Robust financial incentives to encourage investment.

For instance, Tata Consultancy Services expanded its IT delivery centers across SEZs in Hyderabad and Pune, benefiting from tailor-made infrastructure and a lighter compliance load—a move that sharpened their competitive edge in the global outsourcing market.

Top Tax Incentives for Foreign Companies in SEZs

Income Tax Holiday (Section 10AA)

Perhaps the most compelling incentive: the Income Tax Holiday under Section 10AA. Here’s how it breaks down:

• 100% exemption on export profits for the first 5 years.
• 50% exemption for the next 5 years.
• 50% exemption on profits reinvested for another 5 years.

Note: This tax holiday is only available to new units established before the sunset date, which is regularly reviewed by the government. Smart investors keep their ears to the ground for policy updates.

Startup Example: US-based software company Sykes set up operations in Hyderabad’s SEZ and saved millions in tax outflows during their expansion phase, thanks to these holidays.

Customs & Excise Duty Exemptions

Foreign companies love SEZs for their customs and excise duty exemptions:

• No customs duty on imported capital goods, raw materials, consumables, and spare parts.
• No excise duty on goods manufactured and supplied within SEZ limits.

This translates to significant working capital savings and reduced paperwork—a win-win for startups and multinationals alike.

French automotive supplier Faurecia imported high-value machinery duty-free into Pune’s SEZ, freeing up resources for product innovation.

GST Benefits

Goods & Services Tax (GST) policies offer further relief:

• Supplies to SEZs are classified as zero-rated, meaning suppliers can claim input tax credit and fast-track refund processes.
• No GST liability on goods/services consumed within the SEZ, provided procurement follows regulations.

For startups scaling quickly, these GST breaks lighten the compliance load and improve cashflow.

Repatriation & Forex Flexibility

One major concern for foreign investors is the ease of moving profits out of India. SEZs solve this with full, free repatriation of profits, dividends, and capital. Forex transactions face minimal restrictions, as long as compliance with the Foreign Exchange Management Act (FEMA) is maintained.

Stamp Duty & State-Level Incentives

Apart from central benefits, many states sweeten the deal:

• Stamp duty exemptions on property or lease transactions.
• State-specific perks such as power tariff concessions, VAT refunds, and labor law relaxations.

Example: A Singaporean logistics firm grabbed property at a fraction of the usual stamp duty cost in Gujarat’s Dholera SEZ, drastically minimizing setup expenses.

Eligibility & Conditions for SEZ Benefits

To tap into these lucrative advantages, foreign companies must:

• Establish a new unit in a government-approved SEZ—existing units or expansions don’t qualify.
• Maintain positive net foreign exchange (NFE) earnings—earned foreign exchange should always exceed spending.
• Operate as a distinct legal entity, separate from domestic tariff area (DTA) businesses.
• File regular compliance reports under SEZ rules to remain eligible for continued benefits.

It’s not just about claiming tax breaks; it’s about demonstrating ongoing value to India’s economy.

Step-by-Step SEZ Setup Process (Quick Guide)

Here’s a quick playbook for setting up in an SEZ, streamlined for clarity:

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Pro Tip: We at Jordensky offer “turnkey SEZ setup” services that navigate these steps, saving time and costly mistakes.

Frequently Asked Questions (FAQs)

Q1: What is the SEZ Act, 2005?
The SEZ Act governs India’s Special Economic Zones, detailing everything from their establishment and operation to the suite of benefits available for eligible companies.

Q2: Are SEZ tax benefits still available in 2025?
Yes, but current policies—especially around Section 10AA—are under review, so companies should check the latest updates before committing investment.

Q3: Can a foreign company own land within an SEZ?
Yes, ownership is possible, subject to approval by the SEZ Development Commissioner in line with established SEZ rules.

Q4: How is GST handled for supplies to SEZs?
Supplies are treated as zero-rated—meaning input tax credit can be claimed, optimizing working capital and streamlining refund claims.

Key Takeaways & Next Steps

India’s SEZs offer unmatched tax, duty, and compliance advantages for foreign investors. But navigating the setup and documentation process requires diligence. Failing to maintain positive NFE or misfiling compliance reports can jeopardize benefits.

Common Pitfalls to Avoid

• Failing to set up a separate legal entity.
• Overlooking state-level policies and incentives.
• Missing compliance deadlines for mandated reports.

Pro Tip: Collaborate with seasoned consultants or legal advisors who specialize in SEZ strategy. This not only simplifies setup but helps maintain eligibility for all applicable benefits, including those under the SEZ Act, Income Tax Act, and GST regime.

Ready to unlock India’s SEZ potential for your global business? Get expert support for SEZ setup, ongoing compliance, and tax optimization. Our team helps foreign companies maximize benefits while staying fully compliant with evolving SEZ policies.
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By following the guidance above and partnering with the right advisors, foreign companies setting up in India can harness the full power of India’s SEZs, fueling sustained growth and accessing one of the world’s most vibrant markets.