SEZ Unit Setup & Approvals (Development Commissioner)

It is a business that operates from within a government-notified Special Economic Zone, under a Letter of Approval issued by the Development Commissioner, primarily to manufacture goods or provide services for export. In exchange for committing to a positive Net Foreign Exchange (NFE) position over a monitoring period and complying with the SEZ Act's reporting requirements, the unit gets duty-free import of capital goods and inputs, zero-rated GST treatment on its exports, and — for units that commenced operations within the eligible window — a phased income-tax deduction on export profits under Section 10AA of the Income-tax Act.

SEZ unit setup is the front-end process — feasibility assessment, Form F application, Approval Committee review, LOA issuance, bond execution, and pre-operational readiness — that gets a new unit to the point of legally commencing export operations. SEZ compliance is the ongoing, multi-year obligation that begins once the unit is operational: quarterly DC returns, the Annual Performance Report, capital goods register maintenance, NFE tracking, Section 10AA computation, and eventual LOA renewal or exit. PNPC offers both as distinct engagements — this service covers the setup and approval phase; our SEZ Compliance service covers the ongoing management once the unit is live.

The Development Commissioner (DC) is the government official appointed under the SEZ Act 2005 to administer a specific SEZ or group of SEZs. The DC chairs the Approval Committee, which reviews and approves (or rejects) applications for new SEZ units under Form F, issues the Letter of Approval, monitors ongoing performance through quarterly returns and the Annual Performance Report, and has powers to approve or reject changes to an existing unit's approved activities, premises, or DTA sales.

Form F is the prescribed application form under the SEZ Rules for setting up a new unit in an SEZ. It requires details of the applicant entity, the proposed activities, the premises within the SEZ, the projected capital investment, projected exports and Net Foreign Exchange for the approval period, and employment projections. It is accompanied by a detailed project report and is submitted to the Approval Committee of the relevant SEZ for review.

From Form F filing to LOA issuance, the typical range is 6-12 weeks, depending heavily on the specific SEZ's Approval Committee meeting schedule and whether the Committee raises queries requiring a resubmission. Adding the pre-application feasibility and premises-agreement stage, and the post-LOA bond execution and GST/LUT setup before operational commencement, the realistic end-to-end timeline from first engagement to fully operational status is approximately 4-5 months.

It is a formal undertaking executed by the SEZ unit with the SEZ Customs formation, binding the unit to comply with the conditions of duty-free import — including proper accounting of imported capital goods, adherence to the approved activity list, and payment of duty if goods are diverted for unauthorised use. Depending on the unit's risk profile and the Customs formation's practice, a bank guarantee may be required alongside the bond. No duty-free import can be processed at SEZ Customs until this bond is executed and accepted.

Yes. The SEZ unit must obtain a distinct GSTIN for its SEZ premises, separate from any GSTIN the same legal entity holds for a DTA (Domestic Tariff Area) establishment elsewhere. This is because the SEZ unit's supplies are treated under the specific zero-rated export provisions of the IGST Act, and DTA-to-SEZ or SEZ-to-DTA transactions between the same PAN are treated as distinct supplies for GST purposes.

The LUT, filed under Rule 96A of the CGST Rules on the GST portal, allows an exporter — including an SEZ unit — to supply goods or services for export without paying IGST upfront, instead of paying IGST and claiming a refund later. It must be filed before the unit's first export invoice of each financial year and renewed annually.

NFE is the net balance of foreign exchange earned by the unit (export receipts) minus foreign exchange spent (capital goods and input imports, foreign remittances for royalties, technical fees, and foreign personnel salaries), computed cumulatively over the bond monitoring period specified in the LOA — commonly 5 years. The projected NFE figure submitted in Form F becomes the benchmark against which the DC assesses the unit's actual performance in every Annual Performance Report during that period. A unit that cannot realistically achieve positive cumulative NFE should reconsider SEZ status before committing to the bond, not after.

Section 10AA of the Income-tax Act provides a deduction on the profit attributable to export activity of an SEZ unit, computed as (Profit of the Undertaking x Export Turnover) / Total Turnover, applied in three phases: 100% deduction in Years 1-5 from the year the unit commences export operations, 50% in Years 6-10, and a further 50% (subject to creating and utilising a Special Economic Zone Reinvestment Reserve) in Years 11-15. For a genuinely profitable export unit, this is a meaningful multi-year tax benefit — but it is available only to units satisfying the eligibility conditions, including that the unit is not formed by splitting up or reconstructing an existing business.

Section 10AA remains available under the Income-tax Act to units that satisfy its conditions and commence eligible export operations within the timeframe prescribed by the section. Note that the Income-tax Act 1961 is being replaced by the Income Tax Act 2025, effective 1 April 2026 — while the substantive export-profit deduction concept is expected to carry forward in the new Act, section numbering may change in the transitional process. PNPC verifies the exact provision reference applicable at the time your unit commences operations and updates the Form 10CCB computation accordingly.

Yes. Many companies operate an SEZ unit for export-oriented activity alongside a separate DTA establishment for domestic business — each with its own GSTIN, its own accounting, and, for the SEZ unit, its own LOA and compliance obligations. The two must be kept operationally and financially distinguishable — shared costs (rent, common infrastructure, shared staff) need a documented apportionment methodology, particularly for GST input tax credit purposes.

No. The unit must operate from premises located within a government-notified Special Economic Zone, under an agreement (lease or sub-lease) with the SEZ Developer who operates that zone. You cannot convert an existing non-SEZ office into an SEZ unit by applying for LOA status alone — the premises themselves must be within the notified zone boundary.

Yes, an IEC issued by DGFT is required before any capital goods import or export declaration can be processed — it is a foundational requirement independent of, but necessary alongside, the SEZ LOA. We typically ensure the IEC is obtained early in the setup process, well before the bond execution and first import stage.

A foreign company itself cannot directly hold an SEZ Letter of Approval — the LOA is issued to an entity incorporated under Indian law. A foreign parent typically establishes an Indian subsidiary (Private Limited Company) under the FDI auto-route (subject to sectoral conditions), and that Indian subsidiary applies for SEZ unit status. This is a common structure for IT/ITES captive centres serving a foreign parent.

The Committee typically raises specific queries — on the activity description, the NFE projection, the premises adequacy, or the project report's completeness — rather than an outright rejection in most cases. PNPC responds to Committee queries directly with clarifications, refined projections, or additional documentation. Outright rejection is uncommon for applications that are properly prepared and where the underlying business case is genuine.

There is no single fixed minimum investment threshold uniformly prescribed across all SEZ sectors — requirements can vary by the specific SEZ's notification and the nature of the activity (IT/ITES units typically have lighter physical investment thresholds than manufacturing units). What matters more in practice is that the Approval Committee is satisfied the projected NFE is achievable and the business case is genuine, rather than a fixed capital figure. PNPC assesses this on a case-by-case basis against your specific sector and SEZ.

The core LOA and bond process is similar, but the practical details differ: IT/ITES units typically have lighter capital goods import needs (computers, servers, networking equipment) and correspondingly simpler Capital Goods Register maintenance, while manufacturing units often have larger, more complex capital goods lists (plant and machinery) with correspondingly larger bond values and more detailed customs documentation. IT/ITES units frequently face transfer pricing considerations if they are captive centres for a foreign parent, while manufacturing units more often deal with raw material import classification and DTA sale duty computation.

STPI is a separate scheme, administered by Software Technology Parks of India (an autonomous society under the Ministry of Electronics and Information Technology), aimed at IT/ITES exporters. It does not require operating from within a notified SEZ zone and generally involves a lighter compliance and bond structure than SEZ, but it does not currently carry an income-tax holiday (the erstwhile STPI tax exemption sunset years ago) — its primary benefit is customs and procedural facilitation for IT exports. Companies without SEZ premises access, or whose scale does not justify the SEZ bond structure, often choose STPI instead.

An existing business can, in principle, set up a new SEZ unit for its export operations by moving into SEZ premises and applying for a fresh LOA — but this must be structured carefully to avoid falling foul of the Section 10AA condition against splitting up or reconstructing an existing business, which would disqualify the income-tax deduction. Simply relabelling an existing DTA unit as an SEZ unit without a genuine new undertaking is not the correct approach, and any such conversion needs upfront advisory before any physical or legal steps are taken.

From the first export invoice or first duty-free import, the unit is subject to: quarterly performance returns to the DC, monthly NFE tracking (informally, for the unit's own monitoring — formally reported via APR), Capital Goods Register maintenance for every import, FIRC documentation for every export realisation, and (for profitable years) the Section 10AA deduction computation and Form 10CCB certification at the ITR filing stage. These are covered under PNPC's separate SEZ Compliance engagement, which we recommend beginning from the day the unit commences operations.

PNPC charges a fixed, agreed professional fee for the SEZ unit setup engagement — covering feasibility assessment, Form F preparation, Approval Committee liaison, bond documentation, GST/LUT setup, and Capital Goods Register handover. The fee depends on the complexity of the project report, the number of directors/shareholders requiring documentation, and whether foreign shareholding or captive-centre transfer pricing considerations are involved. We confirm the fee in writing before any work begins — government fees, stamp duty, and bond-related bank guarantee charges (if applicable) are separate and payable to the respective authorities.

There is no single fixed government application fee prescribed uniformly for Form F across all SEZs — some Developers and Approval Committees have their own nominal processing charges. The more material costs are commercial: premises lease/sub-lease payments to the SEZ Developer, any bank guarantee charges associated with the bond (if the Customs formation requires one), and the GST/company registration incidental costs common to any new establishment. PNPC clarifies the specific SEZ's fee schedule during the feasibility stage.

SEZ unit setup sits at the intersection of five regulatory frameworks — the SEZ Act, Customs Act, CGST/IGST Act, Income-tax Act, and FEMA — and a mistake at the setup stage (an unrealistic NFE projection, an incorrectly scoped activity description in the LOA, a missed LUT before the first invoice) is expensive and slow to correct once the bond is executed. A generic consultant who has not handled the ongoing compliance side often does not appreciate which setup-stage decisions create downstream APR and duty exposure. PNPC has advised SEZ, STPI, and EOU clients since these frameworks were established, and we design the setup with the ongoing compliance cycle explicitly in mind.

Yes — the authorised signatory filing on the DC's online systems, the GST portal, and Customs' electronic systems requires a valid Class-3 DSC, similar to other MCA and government e-filings. If the entity's directors already hold a DSC from company incorporation, the same can typically be used, subject to validity.

The NFE figure in Form F is a projection, not a legally binding annual target — what matters is the cumulative NFE position over the full monitoring period (commonly 5 years). If early-year performance runs below projection, the unit can still achieve positive cumulative NFE by the end of the bond period through adjusted export growth or deferred capital goods imports. Materially and persistently missing the NFE trajectory, however, is a compliance risk that the DC monitors through the Annual Performance Report — and is a matter for the ongoing SEZ Compliance engagement to manage proactively.

Yes, but only through a formal amendment application to the DC before the new activity commences — the LOA fixes the approved activity list, and revenue from activities outside that list does not qualify as SEZ-authorised operations (with corresponding Section 10AA and duty-treatment implications). PNPC files activity-amendment applications for clients as their business evolves.

The SEZ Act does not impose a separate 'resident director' requirement distinct from the Companies Act 2013's requirement that every company have at least one director resident in India for at least 182 days in the previous calendar year. For SEZ-specific interactions — DC correspondence, Customs bond execution, physical inspections — a locally available authorised signatory or representative materially eases day-to-day coordination, even though it is not a separate statutory SEZ requirement.

The SEZ Developer is the private company or state entity that develops and operates the physical SEZ zone — leasing premises, providing infrastructure, and managing common facilities. The SEZ Customs formation is a government customs office with jurisdiction over the zone, responsible for processing Bills of Entry and Shipping Bills, administering the bond, and conducting physical verification of goods entering or leaving the zone. A unit interacts with both, for entirely different purposes, throughout its life in the SEZ.

There is no statutory SEZ Act requirement mandating a legally separate bank account exclusively for the SEZ unit if it is part of the same legal entity as any DTA operations, but in practice, maintaining a dedicated bank account (or at minimum, clearly segregated accounting) for the SEZ unit's export receipts and import payments materially simplifies FIRC tracking, NFE computation, and APR preparation.

For clients with an Indian SEZ unit that also has a related UAE entity (a group holding company, a UAE Free Zone entity servicing the same end customers, or a UAE-based investor), PNPC's Chennai/Bangalore/Hyderabad SEZ team and Dubai office coordinate under one engagement — covering the India-side SEZ setup and the UAE-side entity considerations (UAE Corporate Tax, transfer pricing between the SEZ unit and the UAE entity, and India-UAE DTAA planning) without the client needing to brief two separate firms.

Exiting the SEZ scheme (de-bonding) is a separate, structured process — a final cumulative NFE audit, duty computation on any remaining dutiable capital goods, customs clearance, bond redemption, GST LUT cancellation, and DC closure certificate. It is not something that happens automatically by simply stopping operations; the LOA and bond remain legally in force until formally closed. This exit process is covered under PNPC's ongoing SEZ Compliance engagement, not the initial setup engagement, though we flag the exit process and its cost implications to clients even at the setup stage so there are no surprises later.

Yes, an SEZ unit can employ foreign nationals from the outset, subject to standard Indian employment visa and FRRO registration requirements applicable to any Indian entity. Foreign employee salary remittances abroad are treated as foreign exchange spent for NFE purposes, so we factor anticipated foreign staffing into the NFE model at the feasibility stage if the business plan includes expatriate hires early on.

There is no legal restriction limiting SEZ unit status to large companies — a genuinely export-oriented small or early-stage business can apply, provided it can secure premises within a notified SEZ and present a credible business case and NFE projection to the Approval Committee. That said, given the setup cost, bond commitment, and ongoing compliance overhead, SEZ status is generally more proportionate for businesses with sustained, sizeable export volumes rather than a very early-stage venture still validating its model.