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Indirect Tax Laws · Foreign Trade Policy

Export Oriented Units, SEZ and Special Economic Schemes (FTP 2023)

Updated 5 October 2026 · Fact-checked

Under FTP 2023, EOU, EHTP, STP and BTP are export-oriented unit schemes under Chapter 6 and the Customs notification. Each unit must export its output and earn positive Net Foreign Exchange (NFE), counted cumulatively over five years from commencement of production. It gets duty-free inputs and capital goods. An SEZ is a zone under the SEZ Act.

Understand Export Oriented Units, SEZ and Special Economic Schemes

India wants exports to grow, so the Foreign Trade Policy (FTP) offers special routes for units that mainly export. The idea is simple: if you export, you should not bear duties on the goods and capital equipment used to make those exports. These routes are the topic of this page.

The EOU scheme covers a unit that undertakes to export its entire production of goods or services. Limited sale in the domestic tariff area (DTA) is allowed under stated conditions. EHTP is for electronic hardware units, STP for software and IT-enabled services, and BTP for biotechnology units. All four work on the same logic and are covered by Chapter 6 of the FTP and the related Customs notification. The unit is approved, operates under customs and Development Commissioner supervision, imports or procures inputs without duty, and must show positive Net Foreign Exchange earnings, counted cumulatively over a period of five years from commencement of production (the block period).

An SEZ is different. It is a geographical area that is deemed to be foreign territory for trade operations, duties and tariffs. It is governed mainly by the SEZ Act, 2005. FTP does not create the SEZ. The SEZ Act, 2005 itself treats supplies from the DTA into an SEZ as exports, and FTP aligns with it. So an EOU is an individual unit approved by the Development Commissioner and located outside a notified zone, while an SEZ is a zone with many units inside it.

Two other ideas often appear together with these. Status holders are exporters recognised as One Star, Two Star, Three Star, Four Star or Five Star Export Houses based on export performance in the current and previous three years. They receive trade facilitation benefits. Towns of Export Excellence (TEEs) are towns notified for their concentration of exporting units in a product. They get benefits such as access to export promotion capital goods on better terms and market access support.

Read the question for the trigger word. 'Entire production', 'NFE' or 'block period' points to EOU. 'Demarcated area' or 'foreign territory' points to SEZ. 'Star' points to status holders. 'Town' or 'cluster' points to TEE.

Key rules to remember

Net Foreign Exchange (NFE)
NFE = Foreign exchange earned (FOB value of exports etc.) − Foreign exchange outgo (CIF value of imports, royalty, remittances etc.)
An EOU/EHTP/STP/BTP unit must have NFE positive, cumulatively over the block period from commencement of production. Always check the exact items counted as earnings and outgo in the question.
EOU core obligation
Export of entire production + positive cumulative NFE over the block period
Domestic (DTA) sale is a limited exception, allowed only as per FTP conditions and usually capped at a share of FOB value of exports. State the cap only if the question or text gives it.
Scheme coverage
EOU = goods/services units; EHTP = electronic hardware; STP = software/IT services; BTP = biotechnology
The four schemes share the same operating framework.
Status holder levels (FTP 2023)
Minimum export performance (US$ million) over the current and previous three years: One Star: 3; Two Star: 25; Three Star: 100; Four Star: 500; Five Star: 2,000
Export performance is counted over the current and previous three years. You get the highest level whose minimum you meet.
SEZ versus EOU
SEZ = demarcated area deemed to be foreign territory (SEZ Act, 2005); EOU = individual unit approved by the Development Commissioner, located outside a notified zone, under FTP
Use this as the first line of any 'difference between' answer.

How to solve Export Oriented Units, SEZ and Special Economic Schemes questions

Use this order for any question on EOU, SEZ and special schemes. It keeps your answer in provision-facts-conclusion form.

  1. 1Identify the scheme or concept the facts point to: EOU, EHTP, STP, BTP, SEZ, status holder or TEE.
  2. 2State the rule in one line, for example 'an EOU must export its entire production and earn positive NFE over the block period'.
  3. 3List the facts that matter: type of activity, location, export value, DTA sale, imports and foreign exchange outgo.
  4. 4Apply the condition to the facts. For NFE, compute earnings minus outgo. For status, compare export performance with the threshold.
  5. 5Check the exception or limit, such as permitted DTA sale, and say whether it is respected.
  6. 6State the benefit or consequence: duty-free imports, procurement benefits, recognition level or support for a TEE.
  7. 7Conclude clearly in one sentence, with the number if there is one.

Quickest way: Trigger-word method

When to use it: Use for case-scenario MCQs and short theory questions when you have under three minutes.

  1. Underline the trigger word: 'entire production', 'zone', 'star', 'town', 'software' or 'biotech'.
  2. Match it to the scheme using the one-line meaning of each scheme.
  3. For numbers, compute NFE or compare with the status threshold. Do nothing else.
  4. Eliminate options that mix schemes, for example giving an EOU a 'demarcated area' feature.
  5. Write the answer as rule, fact, conclusion.

Common mistakes in Export Oriented Units, SEZ and Special Economic Schemes

  • Treating an EOU and an SEZ as the same thing.

    Both give duty-free benefits for export-focused production, so they look alike.

    Fix: Remember that an SEZ is an area under the SEZ Act, 2005, while an EOU is an individual unit under FTP, approved by the Development Commissioner and located outside a notified zone.

  • Saying an EOU cannot sell at all in India.

    Students remember 'entire production exported' and ignore the exception.

    Fix: Write that the unit must export, but limited DTA sale is allowed subject to FTP conditions.

  • Calculating NFE on only one year or ignoring outgo items.

    Students look at exports and forget imports and remittances.

    Fix: Compute NFE as earnings minus total foreign exchange outgo, cumulatively over the block period, and check that it is positive.

  • Mixing up EHTP, STP and BTP.

    The acronyms look similar and are studied together.

    Fix: Tie each to its sector: EHTP to electronic hardware, STP to software, BTP to biotechnology.

  • Counting export performance of only the current year for status.

    Students assume status depends on one year's exports.

    Fix: State that status recognition is based on export performance in the current and previous three years.

  • Writing that TEE status gives duty exemption on all inputs.

    Students generalise from the EOU scheme.

    Fix: A TEE is a town-level recognition giving support such as better access to EPCG and market access assistance. It is not a duty-free unit scheme.

Worked examples

Example 1

Case: Kavya Software Pvt Ltd is an approved STP unit. In its block period it exported services worth ₹60,00,00,000 (foreign exchange earned). Its foreign exchange outgo was ₹35,00,00,000 for imported equipment and ₹3,00,00,000 for royalty remitted abroad. Has it met the NFE condition?

Show the solution
  1. Rule: an EOU/EHTP/STP/BTP unit must earn positive cumulative NFE over the block period.
  2. Foreign exchange earned = ₹60,00,00,000.
  3. Foreign exchange outgo = ₹35,00,00,000 + ₹3,00,00,000 = ₹38,00,00,000.
  4. NFE = ₹60,00,00,000 − ₹38,00,00,000 = ₹22,00,00,000.
  5. NFE is positive.

Answer: Yes. Cumulative NFE is ₹22,00,00,000, which is positive, so the NFE condition is met.

Example 2

Case: Ravi Exports is a merchant exporter. Assume its export performance in the current and previous three years is US$ 30 million, as per the FTP recognition test. Which status category does it fall in? Explain how the status is decided.

Show the solution
  1. Rule: status is based on export performance in the current and previous three years, in tiers by US$ million.
  2. Tier thresholds: One Star US$ 3 million, Two Star US$ 25 million, Three Star US$ 100 million.
  3. US$ 30 million is above US$ 25 million and below US$ 100 million.
  4. So the highest tier it qualifies for is Two Star.

Answer: Ravi Exports qualifies as a Two Star Export House, since US$ 30 million is at least US$ 25 million but less than US$ 100 million.

Exam tips

  • For 'difference between EOU and SEZ', write four points: legal basis, location, nature (unit versus area) and treatment (FTP scheme versus foreign territory).
  • In case MCQs, compute NFE first. A positive result usually decides the answer.
  • Quote exact thresholds for status holders only if you are sure of them. Otherwise write the principle: tiers by export performance over the current and previous three years.
  • Link this topic to EPCG and Advance Authorisation, since questions often ask which scheme suits which exporter.
  • For TEE questions, name the benefit type (EPCG and market access support) and avoid inventing numeric thresholds.

Practice questions from Foreign Trade Policy

Export Oriented Units, SEZ and Special Economic Schemes in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Export Oriented Units, SEZ and Special Economic Schemes: frequently asked questions

What is the EOU scheme under FTP?

It is a scheme for units that undertake to export their entire production of goods or services. They get duty-free import and procurement benefits and must achieve positive Net Foreign Exchange earnings, cumulatively over five years from commencement of production. Limited DTA sale is allowed under conditions.

What is the difference between EOU and SEZ?

An SEZ is a demarcated geographical area deemed to be foreign territory, governed by the SEZ Act, 2005. An EOU is an individual unit approved by the Development Commissioner under FTP, located outside a notified zone.

How is status holder recognition decided under FTP 2023?

It depends on export performance in the current and previous three years. Exporters are recognised as One Star to Five Star Export Houses based on tiered US$ thresholds, and they receive trade facilitation benefits.

What are Towns of Export Excellence?

They are towns notified under FTP for their concentration of exporting units in a particular product. They get support such as better access to EPCG and market access assistance.