Step-by-Step Guide to Setting up an SEZ Unit in India

Introduction

If you’re planning to expand your business globally, setting up a Special Economic Zone (SEZ) unit in India can give you a serious advantage. Think of SEZs as special hubs designed to boost exports, attract foreign investment, and make life easier for businesses.

When you operate inside an SEZ, you get benefits like:

• No customs duty on imports of machinery and raw materials
• Tax holidays on export profits (under Section 10AA of the Income Tax Act)
• Zero-rated GST on domestic procurements
• Fast approvals through single-window clearance
• Simple rules for imports, exports, and customs

With more than 270 SEZs already operating in India, these zones are proven platforms for businesses that want to go global. Now, let’s walk through the SEZ setup process in India in plain language.

Step 1: Check If You’re Eligible

Not every business can operate in an SEZ. Here’s what you need to know:

• Your work must focus on exports — manufacturing, IT/ITES, biotech, pharma, etc.
• Certain restricted activities (like plastic waste recycling) are not allowed.
• Your unit should maintain positive Net Foreign Exchange (NFE) over 5 years.
• Your promoters or directors should have a good compliance history.

Any business type — company, LLP, partnership, or even proprietorship — can apply. In most industries, 100% foreign ownership is also allowed.

Step 2: Register Your Business in India

If you don’t already have a company in India, you’ll need to set one up.

• Register a Company or LLP.
• Make sure your business objects clearly mention SEZ-related activities.
• Get a PAN and an Import-Export Code (IEC).
• Open a current account for transactions.
• Prepare basic financial documents like audited accounts or a net worth certificate.

Pro tip: Even if you’re a foreign company, forming a local entity makes approvals much faster.

Step 3: Pick the Right SEZ

This is a critical step. Choose a location that matches your industry and growth plans:

• Industry focus: IT zones, pharma hubs, electronics clusters, textile parks, etc.
• Infrastructure: Ready-made office spaces, industrial plots, reliable utilities.
• Location: Manufacturers may prefer SEZs near ports, while IT firms thrive in talent-rich cities like Bengaluru or Hyderabad.
• Costs: Check lease rates, facilities, and any state incentives.

You’ll also need a Consent/Offer Letter from the SEZ developer confirming your space.

Step 4: Apply for SEZ Unit Approval

The next step is filing your application:

• Submit Form-F through the SEZ Online portal (and also in physical form).
• Prepare a Project Report showing investment, expected exports, and job creation.
• Attach company documents (MoA, AoA, LLP Agreement).
• Provide promoter KYC, IEC, board resolution, and developer’s offer letter.

Your file goes to the Unit Approval Committee (UAC) for clearance.

Step 5: Get the Letter of Approval (LoA)

If your proposal is cleared, you’ll receive the Letter of Approval (LoA) from the Development Commissioner.

• You get 1 year to start operations (can be extended up to 3 years).
• Once you start, the approval is valid for 5 years, and renewable in 5-year blocks.
• Conditions may include export performance, NFE, and approved activities.

Step 6: Bonding & Customs Formalities

Before starting work, complete a few essential registrations:

• Finalize a lease agreement with your SEZ developer.
• Get your premises bonded with Customs (inspection + demarcation).
• Register your unit on the SEZ Online portal.
• Obtain GST registration.
• Execute a Bond with Customs for duty-free imports.

Step 7: Sign the Legal Undertaking (LUT)

This is a simple but crucial step. You’ll need to sign a Bond-cum-Legal Undertaking (Form-H) with the Development Commissioner and Customs.

By doing this, you promise to:

• Use imports strictly for approved SEZ operations
• Maintain proper records
• Follow SEZ rules and LoA conditions

Non-compliance here can lead to penalties or even cancellation of approvals.

Step 8: Start Your SEZ Operations

Now comes the exciting part — you’re ready to begin!

• Inform the Development Commissioner of your commencement date.
• Start production or service exports.
• For IT/ITES, file Softex forms for every export invoice.
• Maintain prescribed registers for imports, exports, and stock.

From this date, your 5-year operational period begins.

Step 9: Stay Compliant to Keep Benefits

SEZs offer great perks, but you must stay compliant:

• Maintain positive NFE every 5 years.
• Submit Quarterly/Annual Performance Reports (APR).
• File Softex forms for software exports.
• Keep stock registers for Customs verification.
• Pay duties if you sell into the domestic market (DTA sales).
• Renew your LoA every 5 years.

Tip: Many companies hire SEZ consultants to manage compliance smoothly and avoid penalties.

FAQs on Setting up an SEZ Unit in India

Q1. Who can set up an SEZ unit? Any company, LLP, partnership, or proprietorship engaged in export-focused activities can apply.

Q2. What tax benefits do SEZ units get? Exemptions from customs duties, zero-rated GST, and income tax holidays under Section 10AA.

Q3. How long does it take to set up an SEZ unit? Usually between 2–6 months, depending on documentation and approvals.

Q4. Can SEZ units sell in the Indian market? Yes, but such sales are treated as imports into the domestic market and attract duties.

Conclusion

Setting up an SEZ unit in India is one of the smartest ways to grow globally while enjoying tax savings, duty exemptions, and simpler rules. With the right planning and support, the process is straightforward — and the long-term rewards are significant.

Want expert help with your SEZ setup? Reach out to our team for a free consultation and hassle-free assistance. Book a 20-min consultation with us and let’s get start