Economic, Commercial and Intellectual Property Laws · Law relating to Special Economic Zones

Duties, Concessions and Incentives for SEZ

Updated 11 October 2026 · Fact-checked

Under the SEZ Act, 2005, goods and services moving into, out of, or procured from the Domestic Tariff Area by a Unit or Developer are exempt from taxes, duties and cess (section 7). Section 26 lists the concessions. Section 28 lets the Centre fix how long goods stay. Section 30 makes DTA clearances dutiable.

Understand Duties, Concessions and Incentives for SEZ

A Special Economic Zone is treated as a foreign territory for trade and duty purposes. The idea is simple: if a Unit makes or services goods inside the zone for export, taxes should not raise its cost. So the Act gives tax relief to the Developer who builds the zone and the entrepreneur who runs a Unit in it.

The base rule is section 7. Goods or services exported out of, imported into, or procured from the Domestic Tariff Area (DTA) by a Unit or a Developer are exempt from taxes, duties or cess under the enactments in the First Schedule. The exemption is subject to terms, conditions and limitations that are prescribed.

Section 26 spells out the concessions in detail. Every Developer and entrepreneur is entitled to them, but subject to sub-section (2), under which the Central Government prescribes the manner, terms and conditions. So the benefit is a right only on those conditions.

Section 28 deals with time. Goods brought in, or services provided, without payment of taxes, duties or cess cannot stay indefinitely. The Central Government may prescribe the period for which they remain or continue to be provided in the Unit or Zone.

Section 30 covers the reverse flow. When a Unit sells into the DTA, the concession ends. The goods are treated like imports and attract customs duties, as the Act provides. The State Government also has a role under section 50: it may notify policies and enact laws exempting Developers and entrepreneurs from State taxes, levies and duties.

Key rules to remember

General exemption (section 7): Exports from, imports into, or DTA procurement by a Unit or Developer = exempt from taxes, duties and cess under First Schedule enactments; Always add: subject to prescribed terms, conditions and limitations.
Concessions to Developer and entrepreneur (section 26(1)): Customs exemption on imports and on exports; excise exemption on DTA supplies; drawback; service tax exemption; STT exemption for IFSC; CST exemption; Each applies for authorised operations. The STT exemption is for taxable securities transactions entered into by a non-resident through the International Financial Services Centre.
Manner and conditions (section 26(2)): Central Government prescribes manner, terms and conditions of the benefits; Use this to show the concessions are conditional.
Duration (section 28): Central Government prescribes the period goods or services stay without payment of taxes, duties or cess; The Act itself fixes no number of days or years. Do not quote one.
Domestic clearance (section 30): Goods removed from SEZ to DTA = customs duties (including anti-dumping, countervailing and safeguard duties, where applicable) as leviable on such goods when imported; Rate and tariff valuation are those in force on the date of removal; if that date is not ascertainable, on the date of payment of duty.
State exemptions (section 50): State Government may notify policies and enact laws to exempt Developers and entrepreneurs from State taxes, levies and duties; It may also delegate State Act powers to the Development Commissioner.

How to solve Duties, Concessions and Incentives for SEZ questions

Use the same structure for any question on SEZ duties and incentives. It matches the provision, facts, conclusion style that ICSI expects.

1Identify who is involved: Developer, entrepreneur or Unit, and whether the goods or services go into the SEZ, out to a foreign place, or out to the DTA.
2Name the governing section: section 7 for the general exemption, section 26 for the listed concessions, section 28 for duration, section 30 for DTA sale, section 50 for State taxes.
3State the rule in plain words, with its condition, such as authorised operations or prescribed terms.
4Apply it to the facts. Check the direction of movement, since the same goods can be exempt on entry and dutiable on exit to the DTA.
5For duration or conditions, say that the Central Government prescribes them under the rules (section 55 gives the rule-making power) and do not invent figures.
6Close with a clear conclusion that answers the exact question asked.

Quickest way: Direction-of-flow check

When to use it: Use it for short-answer or case questions where you must decide quickly whether a duty applies.

Ask: are the goods moving into the SEZ, out to a foreign country, or out to the DTA?
Into the SEZ or out of India for authorised operations: exemption under sections 7 and 26, subject to conditions.
Out to the DTA: duty applies under section 30, at the rate in force on the date of removal.
Staying a long time: section 28, the period is prescribed by the Central Government.
State levies: section 50, only if the State has notified a policy or law.

Common mistakes in Duties, Concessions and Incentives for SEZ

Saying SEZ goods are exempt from duty even when sold in the DTA.
Students remember only the word exemption.
Fix: Remember that section 30 makes goods removed to the DTA chargeable to customs duties as if imported.
Quoting a fixed period of stay under section 28.
Students guess a number from memory of rules.
Fix: Write that the Central Government may prescribe the period. The section itself gives no number.
Treating the exemptions as unconditional.
Section 26(1) reads like an absolute entitlement.
Fix: Always cite section 26(2) and the words subject to prescribed terms and conditions in section 7.
Applying the duty rate on the date of import into the SEZ to a DTA sale.
Students mix up the entry and exit dates.
Fix: Under section 30(b), use the rate and valuation in force on the date of removal, or the date of payment if the removal date is not ascertainable.
Assuming the Central Government alone grants all tax relief.
Students overlook State taxes.
Fix: Add section 50: the State Government may exempt Developers and entrepreneurs from State taxes, levies and duties.

Worked examples

Example 1

Bharat Gems SEZ Pvt Ltd, a Unit in an SEZ, imports machinery for its authorised operations and later exports finished jewellery abroad. Is it liable to customs duty on these transactions?

Show the solution

Provision: section 7 exempts goods imported into, or exported out of, an SEZ by a Unit from taxes, duties and cess under the First Schedule enactments, subject to prescribed terms and conditions.
Section 26(1)(a) exempts customs duty on goods imported into an SEZ or Unit to carry on authorised operations.
Section 26(1)(b) exempts customs duty on goods exported from a Unit to any place outside India.
Facts: the machinery is for authorised operations and the jewellery is exported outside India. Both fit the exemptions.
Condition: the exemption is available only as per the manner, terms and conditions prescribed under section 26(2).

Answer: Bharat Gems is not liable to customs duty on the import of machinery for authorised operations or on the export of jewellery, provided it satisfies the prescribed terms and conditions.

Example 2

A Unit in an SEZ wants to sell some manufactured goods in India. Explain the duty position and the rate applicable.

Show the solution

Provision: section 30 deals with domestic clearance by Units, subject to the conditions in the rules made by the Central Government.
Duty: goods removed from an SEZ to the DTA are chargeable to customs duties, including anti-dumping, countervailing and safeguard duties under the Customs Tariff Act, 1975, where applicable, as leviable on such goods when imported.
Rate: under section 30(b), the rate of duty and tariff valuation are those in force on the date of removal.
If the date of removal cannot be ascertained, the rate on the date of payment of duty applies.
Rules: the conditions for such sales are made under section 55(2)(za).

Answer: The Unit can sell in the DTA subject to the prescribed conditions, but it must pay customs duty as if the goods were imported, at the rate and valuation in force on the date of removal (or date of payment if the removal date is not ascertainable).

Exam tips

Link each concession to its section. Examiners reward the section number next to the rule.
For section 28 questions, write that the Central Government may prescribe the period. Never invent a time limit.
In case-based questions, check the direction of movement first. It decides whether the answer is exemption or duty.
Mention that benefits are subject to prescribed conditions, and add section 50 for State taxes when the question mentions State levies.
End with a one-line conclusion that answers the question directly.

Practice questions from Law relating to Special Economic Zones

Duties, Concessions and Incentives for SEZ in other exams

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

CMA FinalFiscal Incentives and Exemptions for SEZs

Duties, Concessions and Incentives for SEZ: frequently asked questions

Which section of the SEZ Act, 2005 gives exemption from taxes, duties and cess?

Section 7 gives the general exemption for goods or services exported out of, imported into, or procured from the DTA by a Unit or Developer. It applies under the enactments in the First Schedule and is subject to prescribed terms, conditions and limitations. Section 26 lists the specific concessions.

What does section 28 of the SEZ Act say?

It lets the Central Government prescribe the period for which goods brought in, or services provided, without payment of taxes, duties or cess can remain or continue in a Unit or Zone. The Act itself does not state the period.

Are goods sold by an SEZ Unit in India subject to duty?

Yes. Under section 30, goods removed to the Domestic Tariff Area are chargeable to customs duties as leviable on such goods when imported, including anti-dumping, countervailing and safeguard duties where applicable. The rate is the one in force on the date of removal.

Can a State Government give tax relief to SEZ entities?

Yes. Under section 50, the State Government may notify policies and take steps for laws granting exemption from State taxes, levies and duties to the Developer or entrepreneur. It may also delegate State Act powers to the Development Commissioner.