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Exemptions, Concessions and Drawbacks:
A Developer and an Entrepreneur shall be entitled to the following exemptions, concessions, and drawbacks, the manner, terms and conditions of which may be prescribed by the Central Government:
1. Exemption from any Customs duty, under the Customs Act, 1962 / the Custom Tariff Act, 1975 / any other law for the time being in force, on the following:
- Goods imported into, or service provided in, a Special Economic Zone / Unit, to carry on the authorized operations;
- Goods exported from, or services provided, from a Special Economic Zone / Unit, to any place outside India.
2. Exemption from any excise duty, under the Central Excise Act, 1944 / the Central Excise Tariff Act, 1985 / any other law for the time being in force, on:
- Goods brought from Domestic Tariff Area to a Special Economic Zone / Unit, to carry on the authorized operations.
3. Drawback or such other benefits as may be admissible from time to time on:
- Goods brought / services provided from the Domestic Tariff Area into a Special Economic Zone / Unit;
- Services provided in a Special Economic Zone / Unit by the service providers located outside India to carry on the authorized operations.
4. Exemption from service tax under Chapter-V of the Finance Act, 1994 on:
- Taxable services provided to a Developer / Unit to carry on the authorized operations in a Special Economic Zone.
5. Exemption from the securities transaction tax leviable under Section 98 of the Finance (No. 2) Act, 2004 in case the taxable securities transactions are entered into by a non-resident through the International Financial Services Centre.
6. Exemption from the levy of taxes on the sale or purchase of goods other than newspapers under the Central Sales Tax Act, 1956 if such goods are meant to carry on the authorized operations.
Incentives and Facilities to Units / Developers:
As per the Special Economic Zone Policy Circulars and Notifications of the Government of India, the following incentive and facilities are available to Special Economic Zone Units and Developers in Special Economic Zones:
1. Income earned from Unit in a Special Economic Zone to avail the following exemptions under Section 10-A of Income Tax Act, 1961:
- For a block of first 5 years: 100% income tax exemption
- For next 2 years: 50% tax exemptions
- For next 3 years: up to 50% of the Profits ploughed back
2. Income tax exemption to Developer on export income for 10 consecutive assessment years out of 15 years at the option of Developer under Section 80-IAB of the Income Tax Act, 1961.
Minimum Alternate Tax:
Exemption from Minimum Alternate Tax under Section 115JB of Income Tax Act, 1961 on the income accrued or arising on or after 01.04.2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or SEZ.
Customs and Excise Duty:
- No requirement of licence for imports into Special Economic Zone.
- Import of capital goods, raw materials, consumables, spares etc. into Special Economic Zones to enjoy exemption from customs duty.
- Procurement of capital goods, raw materials, consumable spares etc. from the domestic market to enjoy exemption from Central Excise duty.
- Full reimbursement of Central Sales Tax paid on domestic purchases.
Special Economic Zones exempted from Service Tax.
Foreign Direct Investment:
100% FDI in Manufacturing Sector permitted to Units in Special Economic Zones, for all manufacturing activities except the following: i. Arms and ammunition, explosives and allied items of defence equipment, defence aircraft and warships;
ii. Atomic substances, Narcotics and psychotropic substances and hazardous chemicals, distillation and brewing of alcoholic drinks, and cigarettes, cigars and manufactured tobacco substitutes.
External Commercial Borrowings:
Special Economic Zone Units allowed making External Commercial Borrowings (ECB) without any maturity restriction through recognized banking channels and strictly on a stand alone basis with an annual cap of US$ 500 million for each
Debts incurred by Special Economic Zone Units to be treated as external debt of India. However, these Units will not have access to the foreign exchange reserves of India for servicing such debts.
Foreign Exchange Receipts:
Facility to retain 100% foreign exchange receipts in Exchange Earner's Foreign Currency (EEFC) Account Scheme, except:
- acquisition of foreign exchange by purchase against rupees from any person resident in India other than a unit in a Special Economic Zone.
Foreign Currency Account:
A Special Economic Zone Unit to open, hold and maintain a Foreign Currency Account with an authorized dealer in India subject to certain conditions.
Special Economic Zone Units permitted to make Overseas Investment from Exchange Earner's Foreign Currency Account through Automatic Route.
Offshore Banking Units:
1. Offshore Banking Units allowed the following tax exemption under Section 80LA of Income Tax Act, 1961:
- For first 5 consecutive assessment years: 100% Income-tax exemption
- For next 5 consecutive assessment years: 50% of such income exempt
2. Exemption from tax deduction at source when Offshore Banking Unit pays interest on deposit made / borrowings, on / after 01.04.2005, by / from a non-resident or a person not ordinarily resident in India, as under Section 197A (1D) of Income Tax Act, 1961.
Export of Goods and Services:
- Special Economic Zone Units permitted to realize and repatriate export proceeds to India.
- Authorized dealers to permit units in Special Economic Zones to dispatch export documents directly to the consignees outside India.
- Special Economic Zone Units permitted to undertake job work abroad and export goods from that country subject to certain conditions.
- Receipts of payment allowed in the form of precious metals for Export Oriented Units and Gem and Jewellery Special Economic Zone Units.
- Authorized dealers to allow 'netting off' of export receivables against import payments for Special Economic Zone Units subject to certain conditions.
- Units in Special Economic Zones permitted to capitalize import payables by issuing equity shares to non-residents against import of capital goods subject to certain conditions.
Domestic Tariff Area:
- Supplies from Domestic Tariff Area to Special Economic Zone Units to be treated as 'deemed exports'.
- Release of Foreign Exchange to Domestic Tariff Area Units for buying goods from Export Oriented Units / Units in Export Processing Zones / Special Economic Zone Units.
- Reimbursement of duty paid on furnace oil, procured from domestic Oil Companies by Special Economic Zone Units, as per the rate of Drawback notified by the Directorate General of Foreign Trade.
- Permission of Commodity hedging by Special Economic Zone Units in a commodity exchange or market outside India without prior approval of the Reserve Bank of India on a 'stand-alone' basis.
- Generation, transmission and distribution of power in Special Economic Zones allowed, thus making Units in Special Economic Zone eligible to claim deduction in respect of their income under Section 80-IA (4)(iv).
- Interest rate surcharge on import finance on capital goods fully exempted to Special Economic Zone Units, Units in Electronic Hardware Technology Park and Software Technology Parks.
- General Insurance paid by Special Economic Zone Units from insurer outside India to be paid from Foreign Exchange Earnings General Insurance Policy.
- Special Economic Zone Units allowed to write-off unrealized export bills.
- Exemption from dividend distribution tax to Developers in Special Economic Zones.
- Re-export of imported goods for repair and of goods imported from foreign supplier on loan basis etc. without GR waiver by intimating to the Development Commissioner.
Terms and Conditions for availing exemptions, drawbacks and concessions:
A Developer and an Entrepreneur shall be entitled to exemptions, drawbacks and concessions for authorized operations subject to the following terms and conditions:
1. Execution of Bond-cum-Legal Undertaking:
- The Unit must execute a Bond-cum-Legal Undertaking with respect to its following obligations:
- making proper utilization and keeping proper account of goods which include capital goods, spares, raw materials, components and consumables including fuels, imported or procured duty free;
- achieving positive net foreign exchange earning.
- The Developer and Co-developer must execute a Bond-cum-Legal Undertaking with respect to their obligations in making proper utilization and keeping proper account of goods, including those procured or imported by a duly authorized contractor.
- The Bond-cum-Legal Undertaking executed by the Unit / the Developer / the Co-Developer must cover one or more of the following activities:
- the movement of goods between port of import or export and the Special Economic Zone;
- the authorized operations as applicable to the Unit / the Developer;
- temporary removal of goods / goods manufactured in Unit for the purposes of repairs / testing / calibration / display / processing / sub-contracting of production process / production / other temporary removals, into Domestic Tariff Area without payment of duty;
- re-import of exported goods.
- The Bond-cum-Legal Undertaking must be jointly accepted by the Development Commissioner and the Specified Officer.
- The Bond-cum-Legal Undertaking shall be executed by the following authorities: Entrepreneur Executing Authority
- Where the Entrepreneur / Managing Director of the company / Developer is a company: Director(s) / any person duly authorized by a resolution of the Board of Directors
- Where the Entrepreneur is a Partnership firm: All the partners / authorized partners
- Where the Entrepreneur is a Hindu Undivided Family: The Kartha
- Where the Entrepreneur is a Proprietorship Concern: The Proprietor
- The Value of Bond-cum-Legal Undertaking shall be equal to the amount of effective duties leviable on import or procurement of goods from the Domestic Tariff Area.
- The Unit or the Developer must submit an additional Bond-cum-Legal Undertaking where the value of Bond-cum-Legal Undertaking executed falls short due to requirement of additional goods.
- No debit and credit will be permitted. The Bond-cum-Legal Undertaking amount shall be monitored quarterly / yearly on the basis of Quarterly Progress Report / Annual Progress Report submitted by the Developer / Unit. A fresh or additional Bond-cum-Legal Undertaking shall be provided in case of any shortfall in the Bond-cum-Legal Undertaking amount.
- The original Bond-cum-Legal Undertaking shall be maintained by the office of Development Commissioner and certified copies to be given to the Specified Officer and Unit / Developer.
- The value of the Bond-cum-Legal Undertaking in respect of gems and jewellery units shall be calculated on rates as notified by the Central Government from time to time.
- A duly completed Bond-cum-Legal Undertaking executed by the Unit / Developer as per the above rules shall be deemed to have been accepted in case of receipt of no communication within 7 working days from the date of its submission.
2. Maintenance of Financial Accounts:
Proper financial yearwise accounts must be maintained along with other accounts relating to the import / procurement / consumption / utilization / production / disposal / transfer of goods from the Domestic Tariff Area to the Special Economic Zone / Export Oriented Unit / Electronic Hardware Technology Park / Software Technology Park Units / Biotechnology Park Unit, and the balance in stock.
3. Submission of Annual Performance Reports:
The Unit shall submit Annual Performance Reports to the Development Commissioner and the Development Commissioner shall place it for consideration before the Approval Committee.
4. Submission of the Quarterly Report:
The Developer shall submit the Quarterly Report on import and procurement of goods from the Domestic Tariff Area, its utilization and the stock in hand, to the Development Commissioner and the Specified Officer and the Development Commissioner shall place it before the Approval Committee.