A Guide to India's Special Economic Zones
Special economic zones (SEZs) in India are areas that offer incentives to resident businesses. SEZs typically offer competitive infrastructure, duty free exports, tax incentives, and other measures designed to make it easier to conduct business. Accordingly, SEZs in India are a popular investment destination for many multinationals, particularly exporters.
Currently, India has 276 operational SEZs with total employment of 3.19 million people as of March 31, 2024. Goods exports from Indian SEZs reached US$143.34 billion till January 31, 2025.
In December 2022, it was reported that the Kandla SEZ in Gujarat alone accounted for US$38 billion in export value. According to a Statista report, investments into these SEZs grew to INR 656 billion (US$7.87 billion).
While India’s SEZs are similar to those found in other parts of Asia, business leaders that are considering setting up in a SEZ should seek to understand how SEZs work in India. Each SEZ is unique.
Foreign companies are advised to conduct market entry studies that compare sites, resources, tax incentives, and costs before making ground site visits.
A designated duty-free enclave is considered as a territory outside the customs jurisdiction of India for authorized operations within the Special Economic Zone (SEZ). No import license is necessary, and both manufacturing and service activities are permitted. Units within the SEZ must demonstrate Positive Net Foreign Exchange over a cumulative period of five years from the start of production. Domestic sales are subject to full customs duty and adhere to the current import policy. SEZ units have the liberty to engage in subcontracting. Routine inspections of export/import cargo by customs authorities are not required. SEZ Developers/Co-Developers and Units are entitled to direct and indirect tax benefits as stipulated in the SEZs Act of 2005.
On June 9, 2025, India announced a series of regulatory amendments aimed at promoting SEZs focused on semiconductor and electronic component manufacturing. These changes, introduced under the SEZ Rules, 2006, are expected to reduce entry barriers, enhance operational flexibility, and expand market access for high-tech manufacturing units.
One of the major revisions is the amendment to Rule 5 of SEZ Rules, 2006, which reduces the minimum land requirement for SEZs dedicated exclusively to semiconductors or electronic components from 50 hectares to 10 hectares. This relaxation is intended to make it easier for investors to establish such facilities.
Additionally, Rule 18 has been amended to allow these SEZ units to sell their products in the domestic market, subject to payment of applicable duties. This marks a departure from the traditional export-only model for the manufacturers.
Further, an amendment to Rule 7 empowers the SEZ Board of Approval to waive the requirement for land to be encumbrance-free in specific cases. This provision applies when the land is mortgaged or leased to central or state governments or their authorized agencies, offering greater flexibility in land acquisition and development.
Following the notification of these amendments, the SEZ Board of Approval sanctioned two critical proposals:
India’s Union Ministry of Commerce and Industry stated that these regulatory changes are designed to support investments in sectors that are not only capital-intensive but also dependent on imports and characterized by long gestation periods.
The Indian government had long used export processing zones (EPZs) to promote exports. In fact, Asia’s first EPZ was established in 1965 at Kandla, Gujarat state. While these EPZs had a similar structure to SEZs, the government began to establish SEZs in 2000 under the Foreign Trade Policy. This approach aimed to address issues arising from numerous regulatory controls, inadequate infrastructure, an unreliable fiscal system, and to allure higher foreign investments from international businesses and MNCs to India.
The Special Economic Zone Act, 2005 amended India’s SEZ policy. Many EPZs have converted to SEZs, with notable zones in Noida (Uttar Pradesh state), Falta (West Bengal state), Visakhapatnam (Andhra Pradesh state), Chennai (Tamil Nadu state), Cochin (Kerala state), Santa Cruz (Maharashtra state), Indore (Madhya Pradesh), as well as Kandla and Surat (Gujarat).
Since the Act’s promulgation, the Indian government has also accepted proposals for additional, far smaller SEZs, which must be proposed by developers to the Indian Board of Approval. The SEZ Rules, 2006 lay down the complete procedure to develop a proposed SEZ or establish a unit in an SEZ.
Consequently, the SEZ category encompasses various multiple zone types, such as free trade zones (FTZs), EPZs, industrial estates (IEs), free ports, free trade warehousing zones (FTWZz), and urban enterprise zones, among others.
Some incentives for setting up a sourcing or manufacturing platform within an Indian SEZ include:
After making a shortlist of SEZs for further examination, investors may find that specific SEZs offer other advantages that complement their business plans in India.
As per data from the Ministry of Commerce and Industry, from 2018-19 to 2020-21, 1096 units were registered in special economic zones in India. Exports by units in select SEZs are shown below.
According to the Ministry of Commerce and Industry:
There are many SEZs for your company to choose from – a list of which can be obtained from the Department of Commerce’s website – and so deciding on which is best for you can often be a difficult and stress-inducing process.
For companies directly sourcing from or manufacturing in India, the site should be well placed to acquire the raw materials needed for production, while at the same time being in an area suited for export.
The Delhi National Capital Region (NCR) hosts about 14 SEZs, which are primarily located in satellite cities like Gurugram (formerly Gurgaon, Haryana state) and Noida. Read more here.
The Mumbai area hosts at least seven SEZs across Mumbai and nearby cities like Navi Mumbai, and Thane. Read more here.
The Bengaluru (formerly Bangalore) area hosts at least 18 SEZ, which are mostly located on the city’s outskirts. Read more here.
Meanwhile, Tamil Nadu has the highest number of operational SEZs (40), followed by Karnataka (31), Maharashtra (30), and Uttar Pradesh (14).
List of operational SEZs in Tamil Nadu
List of operational SEZs in Uttar Pradesh
Developers can apply to the Indian Board of Approval to establish an SEZ where one currently doesn’t exist.
Companies, co-operative societies, individuals, and partnership firms are all able to file an application, submitting the Form-A that is available on the commerce department’s website dedicated to Special Economic Zones.
The required information for the form ranges from basic details, such as the name, address, and personal information of the applicant, to more specific details of the proposal, such as the type of land it will be set up on and its means of financing.
The amount of land that the proposal requires will determine what type of SEZ it will be. Some of the different types are:
*Under the sector specific SEZ, land requirement can be relaxed in certain cases, such as for IT/ITES, biotech, or health (other than hospitals) SEZs, where no minimum land area is required.
Any proposal will be first considered by the respective state government where the SEZ is to be located, before it receives formal backing from the Board of Approval.
Incentives and facilities available to developers include:
(The article was originally published on October 23, 2014 and was last updated on June 13, 2025.)
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