Debonding from SEZ: Compliance Steps and Duty Implications

If your business runs inside a Special Economic Zone (SEZ), there may come a stage when you want to step out of the scheme. This process, called debonding, means shifting your unit from the SEZ into the Domestic Tariff Area (DTA).

While this move opens up fresh opportunities in the local market, it also comes with rules, paperwork, and some tax costs that you need to plan for. If managed well, the process is smooth. If ignored, it can turn into unexpected bills and compliance headaches.

This guide breaks down SEZ debonding in simple terms—why companies do it, the steps involved, how duties are worked out, and how you can exit without stress.

What Does Debonding Really Mean?

Debonding is simply the official exit of your SEZ unit. To do this, you’ll need to:

• Give up your SEZ Letter of Approval (LoA)
• Pay back any customs duty or GST benefits enjoyed on imports and local purchases
• Close out SEZ-specific compliances like performance reports and bonded stock records

Think of it as “settling the account” before you move into the regular domestic business regime.

Why Do Businesses Exit SEZ?

Not every unit stays in an SEZ forever. Companies decide to exit when:

• They shift focus from exports to the domestic market
• A project ends or incentive benefits expire
• Running costs of staying in SEZ outweigh the advantages
• They merge or consolidate units for efficiency

Whatever the reason, the exit is a compliance milestone. Planning it well ensures you don’t leave money on the table—or face penalties.

Getting Exit-Ready: A Handy Checklist

A successful SEZ exit starts with good housekeeping. Here are the essentials to tick off:

1. Performance Reports & NFE Make sure all Annual Performance Reports (APR) are filed. Double-check your Net Foreign Exchange (NFE)—if it’s negative, be prepared for penalties.

2. Stock and Asset Registers Reconcile bonded records for raw materials, consumables, finished goods, and machinery. Each entry should clearly show where it came from, what it’s worth, and how it’s being used.

3. Customs & Permissions Clear up pending customs queries or unpaid duties. Close any permissions like subcontracting or job work that were taken during SEZ operations.

4. No-Dues Certificates Get no-dues from your SEZ developer for lease, utilities, and maintenance. Also, clear vendor and employee payments—unpaid dues often slow down approvals.

The Debonding Process, Step by Step

Here’s what typically happens when you apply for SEZ exit:

1. Application & Board Resolution – Submit your request for exit along with a board resolution approving it.

2. Form-L Undertaking – A notarised promise that you’ll follow the exit rules and pay whatever duties are due.

3. Inventory & Asset Schedules – Submit detailed lists of your stock and assets with their intended treatment (export, transfer, destruction, or clearance into DTA).

4. Duty & Tax Reconciliation – Prepare a summary of all imports, exports, domestic clearances, and NFE calculations.

5. Customs Verification – Customs reviews your documents, may visit for physical checks, and calculates duty payable.

6. Exit Order – Once dues are paid and approvals are collected, the Development Commissioner issues the Exit Order.

Duties and Taxes You’ll Face

When you debond, goods and assets that remain in your unit need to be legally moved into the Domestic Tariff Area. Here’s how they’re treated:

• Raw Materials & Finished Goods – These are cleared into DTA through a Bill of Entry, and you’ll pay customs duty, IGST, and cesses at current rates.
• Capital Goods & IT Equipment – Duty is charged on the depreciated value (as per SEZ rules). This often reduces the tax bill for older machines.
• Other Options –
  • Unused stock can be re-exported or transferred to another SEZ/EOU.
  • Scrap can be sold into DTA with duty on its sale value.
  • Valueless goods can be destroyed under customs supervision without duty.

If customs finds misused benefits or if your NFE is negative, expect penalties and interest in addition to duties.

How Duty is Calculated

It’s easier to think of exit duty in two buckets:

• Inventory (inputs, WIP, finished goods): No depreciation allowed. Duty is calculated on either current assessable value or original import value.
• Capital Goods: Duty applies on depreciated value, using SEZ depreciation rules. Computers and peripherals depreciate faster, while machinery depreciates slower.

The cleaner your records, the smoother this part goes.

How Long Does It Take?

On average, SEZ debonding takes 8–12 weeks. A typical flow looks like this:

• Weeks 1–4: File APRs, reconcile stocks, and prepare asset schedules.
• Weeks 5–8: Submit application and obtain in-principle approval.
• Weeks 9–10: Customs verification and duty assessments.
• Weeks 11–12: Pay duties, secure NOCs, and receive the Exit Order.

Note: This is only a guide. Timelines vary by SEZ, industry, and unit size. IT units with fewer assets may exit faster, while manufacturing units with large inventories often take longer.

What to Do After Exit

Once your Exit Order arrives:

• Cancel bonds and release any bank guarantees.
• Update GST registration and ensure suppliers stop treating you as SEZ.
• Update contracts, ERP systems, and pricing models.
• Keep a complete “exit file” with all documents—this will be your shield in case of audits later.

Common Mistakes to Watch Out For

• Missing APR or NFE filings
• Stock mismatches between registers and physical inventory
• Forgetting to budget for duty payments
• Not updating GST systems on time
• Delays in no-dues certificates from developer or utilities

Wrapping Up

Debonding from an SEZ is not just paperwork—it’s a structured compliance process with financial implications. With good planning, updated filings, clear stock records, and cash flow preparation, you can make the move stress-free and audit-ready.