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Indirect Tax Laws and Practice · Export Promotion Schemes under Foreign Trade Policy

Export Oriented Units, SEZ and EHTP/STPI Schemes

Updated 11 October 2026 · Fact-checked

EOU, EHTP, STPI and SEZ are area or unit based schemes that let an exporter buy goods and services without paying customs duty and GST, if it exports and earns net foreign exchange. To solve a question, identify the scheme, check eligibility, apply the benefit, then test the conditions and the sale to the domestic market.

Understand Export Oriented Units, SEZ and EHTP/STPI

India's Foreign Trade Policy is formulated and announced by the Central Government by notification in the Official Gazette, and it can amend it the same way (section 5 of the FT(D&R) Act, 1992). The export promotion schemes in this topic sit under that policy. Their idea is simple: an exporter should not carry tax on inputs that go into goods or services sent abroad.

Export Oriented Unit (EOU) is a unit that undertakes to export its entire production of goods or services, except permitted domestic sales. It can import or buy locally capital goods, raw materials and consumables without paying duty. It must export, earn net foreign exchange (NFE) over a block of years, and keep bonded and accounting discipline.

EHTP (Electronic Hardware Technology Park) and STP (Software Technology Park, run by STPI) are the same idea for electronics hardware and for software or IT-enabled services. The unit is single-purpose: the benefit is tied to the export of that hardware or software. Treat EHTP/STP as EOU-type schemes with a sector focus. Check the current Foreign Trade Policy and Handbook for the exact status of each scheme before you rely on it in an answer.

Special Economic Zone (SEZ) is a different model. It is a designated geographical area treated as foreign territory for trade operations, duties and tariffs. It is governed by the Special Economic Zones Act, 2005. The proviso to section 2(e) of the Foreign Trade Act does only one thing: it says import and export relating to an SEZ, or between two SEZs, are governed by the SEZ Act, 2005. It does not itself say how a DTA-to-SEZ or SEZ-to-DTA movement is classified. The Central Government can also direct that the foreign trade policy applies to SEZs with exceptions, modifications and adaptations, by notification (proviso to section 5).

The key contrast for exams: an EOU is a single unit located anywhere that is bonded and exports. An SEZ is a notified area with developers and many units. A supply from the domestic tariff area (DTA) to an SEZ is treated as an export, and a clearance from an SEZ into the DTA is treated like an import for duty, so customs duty applies on DTA clearance of SEZ goods. These treatments come from the SEZ Act, 2005 and the customs and IGST provisions, not from section 2(e) of the Foreign Trade Act. Also remember that the Act's definition of export covers goods taken out of India and also services or technology supplied to another country, which matters for software and IT units.

Key rules to remember

Net Foreign Exchange (NFE)
NFE = FOB value of exports (foreign exchange earned) − foreign exchange outgo (imports of inputs, capital goods and other specified outflows)
The unit must have positive NFE over the prescribed period. Use the exact definition and period from the current Foreign Trade Policy and Handbook of Procedures.
Meaning of export in the FT(D&R) Act
Goods: bringing into or taking out of India by land, sea or air. Services/technology: supply from India to another country, in India to a foreign consumer, through commercial presence abroad, or through Indian natural persons abroad.
Section 2(e). Services and technology exports are covered, so IT units fit the definition.
SEZ trade under the FT(D&R) Act
Import and export relating to an SEZ, or between two SEZs = governed by the SEZ Act, 2005.
This is all the proviso to section 2(e) says. It refers SEZ trade to the SEZ Act; it does not classify DTA-to-SEZ or SEZ-to-DTA movements.
DTA and SEZ movements
DTA to SEZ = treated as an export. SEZ to DTA = treated like an import for duty (customs duty on DTA clearance).
Source: the SEZ Act, 2005 and the customs and IGST provisions, not section 2(e). Check the SEZ Act and the customs procedure for the exact rules.
Policy power
Central Government formulates and amends the foreign trade policy by notification in the Official Gazette; for SEZs, exceptions and modifications can be notified.
Section 5 and its proviso.
Rules and Orders in Parliament
Rules and Orders are laid before each House for a total of 30 days
Section 19(3). Modification or annulment does not affect anything already done.

How to solve Export Oriented Units, SEZ and EHTP/STPI questions

Use the same sequence for any question on EOU, SEZ or EHTP/STPI. It keeps your answer organised and shows the examiner you tested conditions.

  1. 1Identify the scheme from the facts: single bonded unit exporting all output (EOU), electronics hardware or software unit (EHTP/STP), or a unit inside a notified area (SEZ).
  2. 2Note the nature of the activity: goods, services or technology. Check it against the definition of export in section 2(e).
  3. 3State the benefit: duty-free import or procurement of inputs and capital goods, and the GST and customs position that follows.
  4. 4Test the conditions: export obligation, positive NFE, bonding and records, and any limits on domestic sales.
  5. 5Classify each transaction: export, import, DTA sale or supply to another unit. Remember that DTA to SEZ is an export and SEZ to DTA is an import.
  6. 6Compute duty or NFE if numbers are given, showing each line.
  7. 7Conclude with a clear recommendation or consequence, such as duty payable on DTA clearance or loss of benefit on a breach.

Quickest way: Three-question scheme check

When to use it: Use for 2-mark MCQs and for the first minute of a descriptive answer.

  1. Where is the unit? In a notified SEZ area means SEZ Act, 2005. Anywhere else with a bonded export undertaking means EOU, EHTP or STP.
  2. What does it make or supply? Electronics hardware means EHTP, software or IT services means STP, other goods or services means EOU.
  3. Where does the sale go? Abroad is an export. From SEZ to the domestic market is an import and attracts duty. From DTA to SEZ is an export.

Common mistakes in Export Oriented Units, SEZ and EHTP/STPI

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

    Both give duty-free inputs and both focus on exports.

    Fix: Link an SEZ to a notified area under the SEZ Act, 2005. An EOU is a stand-alone bonded unit under the foreign trade policy.

  • Treating a supply from the domestic market to an SEZ as a local sale

    Students look at the physical movement inside India.

    Fix: Remember the SEZ is treated as foreign territory for trade, so a supply from the DTA to an SEZ is an export, and a sale from the SEZ to the DTA is an import.

  • Ignoring export obligation and NFE

    Students only remember the duty-free benefit.

    Fix: Always state that the benefit is conditional on exporting and earning positive NFE. A shortfall can lead to duty recovery with interest.

  • Forgetting that services and technology count as exports

    Export is associated with goods leaving a port.

    Fix: Quote section 2(e): services and technology supplied from India to another country also qualify. This is why software units fit the scheme.

  • Quoting a scheme feature from memory without checking if it is current

    Notes of older years show repealed or changed features.

    Fix: Use only the current policy position. Treat discontinued schemes as historical, as with MEIS and SEIS.

  • Writing the wrong law for SEZ disputes and procedures

    Students assume the Foreign Trade Act governs everything.

    Fix: State that SEZ import and export are governed by the SEZ Act, 2005, while the Foreign Trade Act gives the policy framework.

Worked examples

Example 1

A unit in a notified SEZ in Gujarat sells goods worth ₹40,00,000 to a buyer in Pune (domestic tariff area). Another unit in Pune supplies goods worth ₹10,00,000 to the same SEZ unit. Classify both transactions and state the consequence.

Show the solution
  1. Step 1: The Gujarat unit is in an SEZ. The proviso to section 2(e) of the FT(D&R) Act refers SEZ import and export to the SEZ Act, 2005, so that Act, with the customs and GST provisions, decides the treatment.
  2. Step 2: The sale of ₹40,00,000 moves from the SEZ to the DTA. It is treated like an import for duty, so customs duty and related levies apply on the DTA clearance as per the SEZ and customs procedure.
  3. Step 3: The supply of ₹10,00,000 moves from the DTA to the SEZ. It is treated as an export by the Pune supplier.
  4. Step 4: Because it is treated as an export, the Pune supplier's supply to the SEZ unit is a zero-rated supply under the IGST law. The supplier can make it without payment of tax under a bond or LUT, or pay tax and claim a refund, subject to the conditions.

Answer: The ₹40,00,000 sale from the SEZ to Pune is treated like an import for duty, so customs duty applies on the DTA clearance. The ₹10,00,000 supply from Pune to the SEZ is treated as an export and is zero-rated: the supplier can supply without payment of tax under bond/LUT, or pay tax and claim a refund, subject to the conditions.

Example 2

An EOU has the following for a block of three years: FOB value of exports ₹6,50,00,000; imports of raw materials ₹3,20,00,000; imports of capital goods ₹1,10,00,000; other foreign exchange outgo ₹60,00,000. Compute NFE and say whether the NFE test is met.

Show the solution
  1. Step 1: Foreign exchange earned = ₹6,50,00,000.
  2. Step 2: Foreign exchange outgo = ₹3,20,00,000 + ₹1,10,00,000 + ₹60,00,000 = ₹4,90,00,000.
  3. Step 3: NFE = ₹6,50,00,000 − ₹4,90,00,000 = ₹1,60,00,000.
  4. Step 4: NFE is positive, so the basic NFE condition is met, assuming the outgo items are those counted under the current policy.

Answer: NFE is ₹1,60,00,000, which is positive, so the NFE test is met.

Exam tips

  • Write the scheme name and the law it comes from in the first line. Marks follow clear identification.
  • For MCQs on SEZ, think of the SEZ Act, 2005 first and the Foreign Trade Act second.
  • In numerical questions, show foreign exchange earned, outgo and NFE as separate lines.
  • Always add a conclusion: benefit available, benefit lost, or duty payable.

Practice questions from Export Promotion Schemes under Foreign Trade Policy

Export Oriented Units, SEZ and EHTP/STPI 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 EHTP/STPI: frequently asked questions

What is the main difference between an EOU and an SEZ?

An EOU is a single unit that undertakes to export its output and is bonded. An SEZ is a notified area treated as foreign territory for trade, with a developer and many units. SEZ trade is governed by the SEZ Act, 2005.

Are services covered as exports for these schemes?

Yes. Section 2(e) of the Foreign Trade Act defines export to include supply of services and technology from India to another country, and in other listed modes. This is why software and IT units qualify.

Who announces the Foreign Trade Policy?

The Central Government formulates and announces it by notification in the Official Gazette, and can amend it in the same way, under section 5 of the Act.

Should I learn MEIS and SEIS along with these schemes?

Know them only as historical. Both schemes have been discontinued, so do not present them as available benefits.