India GST: What is Special Economic Zone?

Janhavi Wagh -

SEZ stands for Special Economic Zone, and all the businesses that operate in this zone can enjoy simpler tax and easier legal compliances. The Special Economic Zone was implemented in India on the 1st of April 2000 to enhance the country's foreign investment and to provide a competitive and hassle-free environment for export.

Where is SEZ located?

The Special Economic Zone is located on the country's border, and they are known as foreign territory for tax purposes. In simpler words, SEZ zones are located in the same country, India, but they are not considered as part of India. Any supply to and from the Special Economic Zone for business purposes will receive better treatment as compared to the states which are not in the SEZ zones.

Years back, the SEZ zones in India has caught the limelight on its failure to convert India into a powerhouse of manufacturing exports. Instead, the SEZ zones have turned into a center of corruption and scam. Even though India SEZ is not as successful as compared to China, it is still a crucial destination for sourcing and manufacturing for foreign investors.

The SEZ zones in India are stated as below:

  • Santa Cruz (Maharashtra)
  • Cochin (Kerala)
  • Kandla and Surat (Gujarat)
  • Chennai (Tamil Nadu)
  • Visakhapatnam (Andhra Pradesh)
  • Falta (West Bengal)
  • Noida (Uttar Pradesh)
  • Indore (Madhya Pradesh)

How does GST work in SEZ zones?

One of the main advantages of conducting business in the SEZ zone is tax benefits. You'll be charged zero-rated supply if you're supplying goods and services to any companies in the Special Economic Zone. Zero-rated supply means any goods and supplies sold by the companies that are free from Goods and Services Tax (GST).

The advantages suppliers gained from supplying goods to SEZ zones are:

  • They can claim Input Tax Credit for supply under bond or LUT without payment of IGST.
  • They can request a refund of taxes paid for supply on payment on IGST.

Businesses in the SEZ zones have to pay IGST for supplying goods, services, or both to anyone as it's considered as inter-state supply.

If businesses supply goods and services to a Domestic Tariff Area (DTA), it will be considered as an export to the DTA area. Hence, customs duties and other import duties are payable by the person receiving the supplies in DTA.

How does this apply to Deskera users?

When Deskera users are creating the organization from the start, they need to indicate if their company is located or involved in the Special Economic Zone or Overseas Trading. If yes, tick on the checkbox as stated above. Providing the right information is crucial in order for us to compute accurate Goods and Service Tax (GST).